Consider a project with an initial investment and positive future cash flows. As the discount rate is increased the ___________________.
A) IRR remains constant while the NPV increases
B) IRR decreases while the NPV remains constant
C) IRR remains constant while the NPV decreases
D) IRR increases while the NPV remains constant
E) IRR decreases while the NPV decreases

Question

Quizplus · Accepted Answer

The Internal Rate of Return (IRR) is a fixed value that does not change with the discount rate, as it is the rate at which the Net Present Value (NPV) equals zero. However, as the discount rate increases, the present value of future cash flows decreases, leading to a decrease in NPV.

Consider a Project with an Initial Investment and Positive Future