Question

1.Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?

1. 1. The project’s IRR increases as the discount rate declines.
   2. The project’s NPV increases as the discount rate declines.
   3. The project’s MIRR is unaffected by changes in the discount rate.
   4. The project’s regular payback increases as the discount rate declines
2. The time value of money is important for three reasons. These three reasons are:
   1. Project options,, uncertainty, and variables.
   2. Relevancy, stability, and consistency.
   3. Project returns, costs, and timing.
   4. Project options, positions, and variables

Answer 1

1) B: The project's NPV increases as the discount rate declines.

NPV is the present value of the cash inflows minus the initial cost. For a given normal cash flow, initial cost occurs now and is not affected by the discount rate. A higher discount rate reduces the present value of the future cash flows which reduces the NPV of project. So if discount rate declines then NPV increases.

The time value of money is important for three reasons. The three reasons are

C) project returns, costs and timing.