Double, Inc. analyzed an investment with a required rate of return of 8.2%. Because the Federal Reserve increased interest rates in the market, Double decided to change the analysis to a 8.8% discount rate. The annual net income and cash flows remained the same. What happened to the net present value?

Question

Quizplus · Accepted Answer

As the discount rate increased from 8.2% to 8.8%, the present value of future cash flows decreases. Therefore, the net present value of the investment will decrease as well.