All else constant, the net present value of a project increases when:
A) The discount rate increases.
B) Each cash inflow is delayed by one year.
C) The initial cost of a project increases.
D) The rate of return decreases.
E) All cash inflows occur during the last year of a project's life instead of periodically throughout the life of the project.

Question

Quizplus · Accepted Answer

The net present value (NPV) of a project increases when the rate of return decreases because the discount rate (used to calculate NPV) is inversely related to the NPV. A lower discount rate increases the present value of future cash inflows, thus increasing the NPV.

All Else Constant, the Net Present Value of a Project