Question

As the discount rate decreases, the IRR of a project:

Select one:

a. increases

b. is unaffected

c. decreases

d. This cannot be determined without the discount rate.

Answer 1

Solution:-

If Discount Rate Decreases, Then IRR of the Project is increases.

IRR is the rate of return in which Net present Value of the Project is zero. IRR is method which is used in capital bugdeting to estimate the profitability of Investment.

There is inverse Relationship between discount rate and Net present value. As if discount rate is higher then Net present Value is lower or vice versa.

Hence, the Correct answer is point A i.e. Increases.

If you have any query related to answer then please feel free to ask me in a comment. Thanks.