Question

The net present value:

a) increases as the required rate of return increases.

b) is equal to the initial investment when the internal rate of return is equal to the required return.

c) method of analysis cannot be applied to mutually exclusive projects.

d) is inversely related to the discount rate.

e) is unaffected by the timing of the related cash flows.

Answer 1

please find below the solution.. let me know if you need any clarification..

correct answer is option : d) is inversely related to the discount rate.

NPV is inversely related to discount rate. Higher the discount rate lower will be NPV. As numerator will reduce and giving higher value. NPV increase when required rate decrease so a) is not correct. NPV is ZERO when   initial investment when the internal rate of return is equal to the required return. therefore option b is not correct. NPV is best method to analyze Mutually exclusive project. NPV take cares of timing of cash flow.

Only option d) is correct.