Question

Consider a project with an initial outflow at time 0 and positive cash flows in all...

Consider a project with an initial outflow at time 0 and positive cash flows in all subsequent years. As the discount rate increases, the _____________.
A.  IRR remains constant while the NPV increases.
B.  IRR decreases while the NPV remains constant.
C.  IRR increases while the NPV remains constant.
D.  IRR remains constant while the NPV decreases.
E.  IRR decreases while the NPV decreases.

Homework Answers

Answer #1

Asnwer is D. IRR remains constant while the NPV decreases.

This is because, in NOV future value of cashflows are discounted to get the present value, hence, if the dicpunt rate will increase the the present value of future cash inflows will decrease without affecting the cash outflow at time 0. This will result in reduced NPV. Moreover IRR will not be affected because it is the rate at which the NPV is ) i.e. The present value of cash inflows is equal to the present value of cash outflows.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Answer Question 1-3 Project A has the following projected cash flows: Year           Cash Flow 0                -11,23
Answer Question 1-3 Project A has the following projected cash flows: Year           Cash Flow 0                -11,235 1                4,400 2                4,400 3                4,400 4                4,400 5                7,400 Q1) The NPV of the above project is $_____. Assume a discount rate of 6%. a)9541 b)20776 c)17623 d)6388 Q2) The IRR for the above project is __ %. a)21.09 b)26.76 c)33.95 d)31.25 Q3)Which of the following statement is correct? a)If the discount rate increases, the IRR will decrease. b)If the discount rate increases, the NPV will stay the same. c)If...
Suppose a project generates positive cash flows for the next 12 years and the project’s NPV...
Suppose a project generates positive cash flows for the next 12 years and the project’s NPV is $110,000 when discount rate is 6%. Also suppose that the IRR=8.7%. Which of the following may be a possible value for NPV when discount rate is 7.4%? A. -$25,000 B. 0 C. $25,000 D. $125,000 E. None of the above
Assume a project has normal cash flows (i.e., the initial cash flow is negative, and all...
Assume a project has normal cash flows (i.e., the initial cash flow is negative, and all other cash flows are positive). Which of the following statements is most correct? All else equal, a project's IRR increases as the cost of capital declines. All else equal, a project's NPV decreases as the cost of capital declines. All else equal, a project's MIRR is unaffected by changes in the cost of capital. Answers a and b are correct. Answers b and c...
A project has an initial cash outflow of $26,800 and produces cash inflows of $8,304, $12,516,...
A project has an initial cash outflow of $26,800 and produces cash inflows of $8,304, $12,516, $18,240, and $10,390 for years 1 through 4, respectively. What is the NPV at a discount rate of 12 percent? $8,312.46 b. $10,177.87 c. $12,029.09 d. -$1,208.19 e. $7,675.95
A project has an initial cash outflow of $42,600 and produces cash inflows of $17,680, $19,920,...
A project has an initial cash outflow of $42,600 and produces cash inflows of $17,680, $19,920, and $15,670 for Years 1 through 3, respectively. What is the NPV at a discount rate of 12 percent? Select one: A. $186.95 B. –$108.19 C. $219.41 D. $229.09 E. $311.16
Assume a project has normal cash flows (i.e., the initial cash flow is negative, and all...
Assume a project has normal cash flows (i.e., the initial cash flow is negative, and all other cash flows are positive). Which of the following statements is most correct? Question 2 options: All else equal, a project's IRR increases as the cost of capital declines. All else equal, a project's NPV increases as the cost of capital declines. All else equal, a project's MIRR is unaffected by changes in the cost of capital. Answers a and b are correct. Answers...
Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial cash outflow...
Ace Inc. is evaluating two mutually exclusive projects—Project A and Project B. The initial cash outflow is $50,000 for each project. Project A results in cash inflows of $15,625 at the end of each of the next five years. Project B results in one cash inflow of $99,500 at the end of the fifth year. The required rate of return of Ace Inc. is 10 percent. Ace Inc. should invest in: a. ​Project B because it has no cash inflows...
The table below gives the cash flows for a project that last four years. This discount...
The table below gives the cash flows for a project that last four years. This discount rate is 8.9% Time Cash Flow PV(CF) 0 -192,100 a 1 32,300 b 2 50,600 c 3 73,200 d 4 92,200 e What is the NPV of the project? What is the IRR of the project? What is the Profitability Index of the project?
1. Which of the following statements is correct? a. A project with conventional cash flows is...
1. Which of the following statements is correct? a. A project with conventional cash flows is one with an initial cash outflow followed by one or more cash inflows. b. The NPV method determines how much the future value of cash inflows exceeds the present value of costs. c. All the answers are correct. d. When two projects are independent, accepting one project implicitly eliminates the other. e. Conventional cash flow patterns could lead to conflicting decisions by NPV and...
question 1 Consider the following two projects: Time         Cash Flows                 A           
question 1 Consider the following two projects: Time         Cash Flows                 A                      B 0          -$4,000               -$4,000 1           $2,003               $0 2            $2,003               $0 3            $2,003               $0 4           $2,003               $10,736 Assuming a 14 percent discount rate, which project would you prefer? Hint: Use NPV method I. Project B, because it has a higher NPV II. None of the above III. Project A, because it has a higher NPV                             ...