Using a higher risk adjusted discount rate makes NPV smaller so projects are less likely to be accepted. But a higher rate has no effect on the computed value of IRR and therefore doesn't make any difference to the likelihood of project acceptance.

Question

Quizplus · Accepted Answer

A higher risk adjusted discount rate will result in a higher required rate of return for the project, which affects both NPV and IRR. As the required rate of return increases, the NPV of the project will decrease, making it less likely to be accepted. Additionally, a higher discount rate will increase the hurdle rate for IRR, making it more difficult for the project to meet the required rate of return and therefore decreasing the likelihood of project acceptance.

Using a Higher Risk Adjusted Discount Rate Makes NPV Smaller