Question

When reviewing the net present profile for a project ________.

A) the higher the discount rate, the higher the IRR
B) the IRR will always be a point on the horizontal axis equal to the required return
C) the higher the discount rate, the higher the NPV
D) the IRR will always be a point on the horizontal axis line where NPV = 0

Answer 1

The IRR will always be a point on the horizontal axis line where NPV = 0.

Step-by-step explanation:

When reviewing the net present profile for a project, the IRR will always be a point on the horizontal axis line where NPV = 0 (Option D). The net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. The internal rate of return (IRR) is the discount rate that makes the NPV equal to zero. Therefore, when plotting the net present profile, the IRR will always be a point on the horizontal axis line where NPV equals zero.