All else constant,the net present value of a typical investment project increases when:
A)the discount rate increases.
B)each cash inflow is delayed by one year.
C)the initial cost of a project increases.
D)the required rate of return decreases.
E)all cash inflows occur during the last year instead of periodically throughout the project's life.

Question

Quizplus · Accepted Answer

The net present value (NPV) of a project is calculated by discounting all future cash inflows and outflows to their present value using a required rate of return (or discount rate). If the required rate of return decreases, the present value of future cash flows will increase, causing the NPV to increase. Therefore, option D is the correct answer. Increased discount rate (option A) and delayed cash inflows (option B) decrease the present value of future cash flows, leading to lower NPV. Increased initial cost (option C) also decreases NPV. All cash inflows occurring in the last year (option E) may result in a higher NPV, assuming the required rate of return is met, but this is not always the case and cannot be generalized.

All Else Constant,the Net Present Value of a Typical Investment