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Suppose we invest in a new stock market information service that is sold by subscription to...

Suppose we invest in a new stock market information service that is sold by subscription to stock market participants. Our investment will generate a stream of income from the subscription revenues collected in future years. What happens to the net present value (NPV) of this investment if the discount rate increases?

A. We do not have enough information to answer this question

B. NPV increases

C. NPV is unchanged

D. NPV declines

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Answer #1

Correct Answer:

D

There is an inverse relationship between discount rate and NPV. So, increase in discount rate, leads to decrease in the value of the NPV.

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