Which of the following statements is true of a project whose cash flows accrue r

Question

Which of the following statements is true of a project whose cash flows accrue relatively rapidly?? a. ?The project will have multiple internal rates of return due to rapidly accruing cash flows. b. ?The payback period is longer than the years expected to recover the original investment. c. ?The net present value of the project is always negative if cash flows accrue rapidly. d. ?The required rate of return is revised throughout the duration of the project. e. ?The net present value is not very sensitive to changes in the discount rate.

Explanation / Answer

Internal rate of return is the return at which NPV is zero i.e., Present Value of Cash inflows equals present value of cash outflows. If the cash flows accrue relatively rapidly, NPV gets changes and hence IRR.

Hence correct option is

The NPV is not very sensitive to changes in the discount rate

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