Which of the following performance measures will decrease if the minimum required rate of return increases?
A)Option A
B)Option B
C)Option C
D)Option D

Question

Which of the following performance measures will decrease if the minimum required rate of return increases? 
A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

The minimum required rate of return is used as the discount rate in calculating the net present value (NPV) of a project. As the minimum required rate of return increases, it becomes more difficult for a project to generate a positive NPV as the future cash flows are discounted at a higher rate. Therefore, option B, which is the NPV of a project, will decrease if the minimum required rate of return increases. Option A (payback period), option C (return on investment), and option D (internal rate of return) are not directly affected by changes in the discount rate used in NPV calculations.

Which of the Following Performance Measures Will Decrease If the Minimum