Which of the Following Would Decrease the Net Present Value

question 25

Multiple Choice

Which of the following would decrease the net present value of a project?

• A) A decrease in the income tax rate.
• B) A decrease in the initial investment.
• C) An increase in the useful life of the project.
• D) An increase in the discount rate.

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Definitions:

Pledged

Assets or collateral that a borrower offers to a lender to secure a loan, which the lender may seize if the loan is not repaid.

Default Risk

The risk of loss to a lender from the borrower’s failure to pay the full amount due including interest and principal.

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically used for the financing of accounts receivable, inventories, and meeting short-term liabilities.

Bank Loan

A sum of money lent by a bank to a borrower at an interest rate, which is to be repaid with interest according to the terms of the loan agreement.