A decrease in the firm's discount rate will increase NPV, which could change the accept/reject decision...
A decrease in the firm's discount rate will increase NPV, which could change the accept/reject decision for a potential project. However, such a change would have no impact on the project's IRR, and hence on the accept/reject decision under the IRR method. True False
Homework Answers
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YOUR REQUIRED ANSWER IS TRUE
A decrease in firm's discount rate will lead to discounting the future cashflows at a lower rate which will increase their present value and hence, NPV.
But in IRR, we do not discount anything, but we calculate a rate at which, had we discounted, brings NPV = 0. Hence, no impact on IRR and hence on accept/reject decision under the IRR method.
I hope this solves your doubt.
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