Question

What is the standard of plotting the NPV of a project on a graph against DR used?

a. Line chart
b. Bar chart
c. Pie chart
d. Discounted cash flow chart

Answer 1

A line chart is the standard format for graphically representing the relationship between a project's Net Present Value (NPV) and the Discount Rate (DR) used.

Step-by-step explanation:

The standard for plotting the Net Present Value (NPV) of a project on a graph against the Discount Rate (DR) used is typically done using a line chart. This type of graph is useful for showing the relationship between two variables, such as the NPV and the DR. In a line chart, the DR would be displayed on the horizontal axis, and the NPV on the vertical axis, allowing one to see how the NPV changes as the DR varies. This can illustrate the sensitivity of the NPV to changes in the DR and can help in determining the discount rate at which the NPV becomes zero, known as the internal rate of return (IRR).

Answer 2

The standard method of plotting the Net Present Value (NPV) of a project on a graph against the Discount Rate (DR) used is: a. Line chart

Step-by-step explanation:

A line chart is commonly used to represent the relationship between NPV and the DR. The x-axis of the chart represents the DR, while the y-axis represents the NPV. Each point on the chart corresponds to a specific DR and its corresponding NPV.

To plot the NPV on a line chart against the DR used, follow these steps:

1. Determine the range of DRs: Decide on a range of DRs that you want to analyze. This range will determine the data points on the x-axis of the line chart.

2. Calculate the NPV for each DR: Using the chosen range of DRs, calculate the NPV for the project at each DR. This will give you the corresponding data points on the y-axis of the line chart.

3. Plot the data points: On the line chart, plot each DR on the x-axis and its corresponding NPV on the y-axis. Connect the data points with a line to visualize the relationship between the NPV and the DR.

The line chart allows you to observe how the NPV changes as the DR varies. It helps identify the critical points where the NPV may turn positive or negative, indicating the viability of the project at different discount rates.

Therefore, the standard method of plotting the NPV of a project on a graph against the DR used is a line chart.