As long as the NPV of a project declines smoothly with increases in the discount rate, the project is acceptable if its:
A)internal rate of return is positive.
B)net present value does not equal zero.
C)rate of return exceeds the cost of capital.
D)cash inflows exceed the initial cost.

Question

Quizplus · Accepted Answer

A declining NPV with increasing discount rates indicates that the project's rate of return is lower than the cost of capital. If the project's rate of return (or internal rate of return) exceeds the cost of capital, then the project is still generating a positive return despite the increasing discount rates, making it acceptable. Therefore, choice C is the correct answer. However, choices A, B, and D do not necessarily guarantee project acceptability and are not the best choices.

As Long as the NPV of a Project Declines Smoothly