An Analyst Is Developing Net Present Value (NPV) Profiles for Two

question 97

Multiple Choice

An analyst is developing net present value (NPV) profiles for two investment projects. The only difference between the two projects is that Project 1 is expected to receive larger cash flows early in the life of the project, while Project 2 is expected to receive larger cash flows late in the life of the project. The slope of the NPV profile for Project 1 when compared to the slope of the NPV profile for Project 2 is most likely:

• A) Equal
• B) Flatter
• C) Steeper
• D) Unequal

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Definitions:

Leon Festinger

An American social psychologist renowned for developing the theory of cognitive dissonance, which describes the psychological discomfort resulting from holding contradictory beliefs or attitudes.

Theory

A general principle or set of principles proposed to explain how a number of separate facts are related.

Cognitive Dissonance

A psychological phenomenon where an individual experiences discomfort from holding two or more contradictory beliefs, values, or ideas simultaneously.

Inconsistencies

Occurrences of being in conflict or not being consistent in thoughts, behaviors, or actions.