A project has the following cash flows: C0 = -100,000; C1 = 50,000; C2 = 150,000; C3 =
100,000. If the discount rate changes from 12% to 15%, what is the change in the NPV of the
Project (approximately)?
A) 12,750 increase
B) 12,750 decrease
C) 122,650 increase
D) 135,400 decrease

Question

Quizplus · Accepted Answer

The NPV of the project at 12% discount rate is:
NPV = -100,000 + 50,000/(1+0.12) + 150,000/(1+0.12)^2 + 100,000/(1+0.12)^3
NPV = $31,624.80
The NPV of the project at 15% discount rate is:
NPV = -100,000 + 50,000/(1+0.15) + 150,000/(1+0.15)^2 + 100,000/(1+0.15)^3
NPV = $18,874.49
Therefore, the change in NPV is:
Change in NPV = $18,874.49 - $31,624.80 = -$12,750.31
Since the NPV decreases with an increase in the discount rate, the answer is (B) 12,750 decrease.

A Project Has the Following Cash Flows: C0 = -100,000;