Which of the following statements is CORRECT?
A) The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases.
B) An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life.
C) An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital.
D) We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.
E) An NPV profile graph shows how a project's payback varies as the cost of capital changes.

Question

Quizplus · Accepted Answer

The NPV profile graph is designed to show how a project's contribution to the firm's value varies with the cost of capital. The slope of the profile graph may be positive or negative depending on the project's cash flows and cost of capital. The WACC is needed to calculate the NPV, but it is not necessary to draw the NPV profile graph. The NPV profile graph does not provide information about the project's risk or payback period.

Which of the Following Statements Is CORRECT