Question

The net present value: A) decreases 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) ignores cash flows that are distant in the future. E) is unaffected by the timing of an investment's cash flows.

Answer 1

Answer: A. decreases as the required rate of return increases

Explanation: The net present value decreases as the required rate of return increases. The net present value is often employed by Chief Financial Officers (CFOs) as a method of investment analysis and as an evaluation method for capital expenditures to analyze the profitability of a projected investment or project. It is defined as the difference between the present values of cash inflows and cash outflows both positive and negative, over a period of time (or over the entire life of an investment discounted to the present.