An increase in the risk-adjusted discount rate for a risky project will result in which of the following?
A) no change to the NPV
B) an increase in the IRR
C) an increase in the NPV
D) a decrease in the NPV

Question

Quizplus · Accepted Answer

A higher risk-adjusted discount rate will increase the discounting of future cash flows, leading to a lower present value of those cash flows and a decrease in the NPV of the project. Option A is incorrect because the NPV is directly impacted by changes in the discount rate. Option B is incorrect because the IRR is based on the cash flows and not affected by the discount rate. Option C is incorrect because increasing the risk-adjusted discount rate decreases the present value of future cash flows, and therefore does not increase the NPV.

An Increase in the Risk-Adjusted Discount Rate for a Risky