Question

All else constant, the net present value of a typical investment project increases when:

a. The initial cost of a project increases.


b. The rate of return decreases.


c. The discount rate increases.


d. All cash inflows occur during the last year instead of periodically throughout a projects life.


e. Each cash inflow is delayed by one year.

Answer 1

The correct answer is letter "B": The rate of return decreases.

Step-by-step explanation:

Net Present Value or NPV is a mathematical calculation used to determine if a project could be profitable or not. NPV is obtained by subtracting the present value of outflows from the present value of inflows, In case NPV is positive, it is expected a project will provide the firm profits, while a negative NPV implies the company incurring in losses.

The Rate of Return (RoR) has an inverse relation with the NPV meaning if the RoR decreases the NPV will increase and vice versa.