You have estimated the value of a planned project by finding the present value o

Question

You have estimated the value of a planned project by finding the present value of all the cash inflows from that project. Which of the following would cause the project to look more appealing (have a greater net present value)?

The discount rate decreases.

The cash flows are extended over a longer period of time, but the total dollar amount of the cash flows remains the same.

The discount rate increases.

Answers (a) and (b) are correct.

Answers (b) and (c) are correct.

The discount rate decreases.

The cash flows are extended over a longer period of time, but the total dollar amount of the cash flows remains the same.

The discount rate increases.

Answers (a) and (b) are correct.

Answers (b) and (c) are correct.

Explanation / Answer

You have estimated the value of a planned project by finding the present value of all the cash inflows from that project. Which of the following would cause the project to look more appealing (have a greater net present value)?

Answer: Options A and B are correct options.

Reason: A decrease in the discount rate would increase the PV of the cash flow and an increase in the length of the cash flows would increase the NPV.

I hope my solution solves your query.

Regards.

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