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Which statement is true: As the WACC decreases, the NPV increases As the WACC decreases, the...

  1. Which statement is true:
  1. As the WACC decreases, the NPV increases
  2. As the WACC decreases, the NPV decreases
  3. As the WACC increases, the NPV increases
  4. The NPV is not impacted by changes in WACC
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Answer #1

As the WACC decreases, the NPV increases

NPV is calculates by subtracting initial investment from present value of cash inflows. WACC is used to compute the present value of cash inflows. Since WACC is used in the denominator to calculate the present values, as WACC decreases, the NPV increases.

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