Question

A CFO of a start-up company is evaluating the timing of a significant capital expenditure. He was previously at a mature company that used a discount rate of 8% so he used the same rate at the start-up company. Which of the following would be impacted if the discount rate were raised to reflect the risk of the start-up company?

a) Internal rate of return
b) Payback period
c) Return on investment
d) Net present value

Answer 1

d) Net present value

Step-by-step explanation:

The net present value is the value that shows the difference between the initial investment present value and the cash flows present value. If the present value cash flows is more than the initial investment present value so the project should be accepted else rejected

So here in the given situation, the net present value would be effected in the case when the discount rate would be raised in order to present the start up company risk

Hence, the option d is correct