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Net present value of a proposed project

1. An increase in the discount rate:
A) will increase the present value of future cash flows.
B) will have no effect on net present value.
C) will reduce the present value of future cash flows.
D) is one method of compensating for reduced risk.

2. Suppose an investment has cash inflows of R dollars at the end of each year for two years. The present value of these cash inflows using a 12% discount rate will be:
A) greater than under a 10% discount rate.
B) less than under a 10% discount rate.
C) equal to that under a 10% discount rate.
D) sometimes greater than under a 10% discount rate and sometimes less; it depends on R.

3. How are the following used in the calculation of the net present value of a proposed project? Ignore income tax considerations.

Depreciation expense Salvage value
A) Include Include
B) Include Exclude
C) Exclude Include
D) Exclude Exclude

Solution Preview

1. An increase in the discount rate:

C) will reduce the present value of future cash flows.

(As there is an inverse relations between discount rate and ...

Solution Summary

Response discusses the net present value of a proposed project

$2.19