What Will Happen to the Net Present Value (NPV)of a Project

question 116

Multiple Choice

What will happen to the net present value (NPV) of a project if the discount rate is increased from 8% to 10%?

• A)NPV will always decrease.
• B)NPV will always increase.
• C)The discount rate change will not affect NPV.
• D)We cannot determine the direction of the effect on NPV from the information provided.

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Definitions:

Income Level

The amount of revenue generated by an individual or organization before any deductions are made.

Debt-to-Equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

Equity Buffer

Additional equity maintained by a financial institution above the regulatory minimum to absorb potential losses.

Ratios

Ratios are financial metrics derived from a company's financial statements, used to evaluate aspects such as its profitability, liquidity, and solvency.