When a company’s discount rate increases, which of the following is true for a project that...
When a company’s discount rate increases, which of the following is true for a project that currently has a net present value of $105,325.69 and an IRR of 15.66%?
A. The company’s IRR will increase
B. The company’s IRR will decrease
C. The company’s net present value will increase
D. The company’s net present value will decrease
Homework Answers
IRR (Internal Rate of Return) is the rate at which Net Present Value equal to Zero. In other words, at IRR the net present value of cash inflows are equal to present value of cash outflows.
The discount rate is used to determine the net present value of a project. When a discount rate increases the Net Present Value will decrease.
Hence, the correct option is D. The company’s net present value will decrease
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