What happens to the NPV of a one-year project if fixed costs are increased from $400 to $600,the firm is profitable,has a 35% tax rate,and employs a 12% cost of capital?
A) NPV decreases by $200.00.
B) NPV decreases by $173.91.
C) NPV decreases by $130.00.
D) NPV decreases by $113.04.

Question

Quizplus · Accepted Answer

The increase in fixed costs reduces the project's cash flows, which in turn reduces the NPV. The tax rate and cost of capital are irrelevant to this calculation.

What Happens to the NPV of a One-Year Project If