The net present value of a project will increase when the:
A) Discount rate increases.
B) Initial investment increases in amount.
C) Cash inﬂows are received sooner.
D) Estimated salvage value of the equipment is lowered.
E) Tax rate applied to the project's proﬁts is increased.

Question

Quizplus · Accepted Answer

Cash inflows received sooner will increase the present value of those cash flows and therefore increase the net present value. Option A is incorrect because an increase in the discount rate would decrease the present value of the cash flows and decrease the net present value. Option B is incorrect because an increase in the initial investment would decrease the net present value. Option D is incorrect because a lower salvage value would decrease the future cash flows and decrease the net present value. Option E is incorrect because an increase in the tax rate would decrease the after-tax cash flows and decrease the net present value.

The Net Present Value of a Project Will Increase When