Question

Everything else held constant, an investment project will be more desirable

Group of answer choices

the higher its required rate of return.

the greater and less certain its cash flows.

the greater and more certain its cash flows.

the higher the marginal tax rate.

Two of these are correct.

Answer 1

• If the required rate is higher, the NPV is lower so project is less desirable
• If CFs are greater but uncertain, then risk is higher, meaning required rate is higher so NPV is lower and project is less desirable
• If CFs are greater and certain, then risk is lower, meaning required rate is lower so NPV is higher and project is more desirable
• If Tax rate is higher, then the CFs are lower so NPV is lower and project is less desirable
• Only option 3 is correct not two choices