Assume you are looking at a graph that relates the net present value of two mutually exclusive investment projects to various discount rates.Assume the projects have differing cash flows and finite lives.Which one of these statements accurately reflects this graph?
A)The lines representing the projects will be upward sloping.
B)If one project has equal cash flows for each year of its life,the line representing that project will be horizontal.
C)The lines representing the projects will be parallel over multiple discount rates.
D)The lines representing the projects must cross at a point where the NPV of each project is positive.
E)The project lines will reflect lower NPV values at higher discount rates.

Question

Quizplus · Accepted Answer

The NPV of an investment decreases as the discount rate increases because future cash flows are discounted more heavily. This relationship is inversely proportional, leading to lower NPV values at higher discount rates.

Assume You Are Looking at a Graph That Relates the Net