Project A has a pattern of large cash inflows in the early years of its life, whereas Project B generates a majority of its cash inflows in the later years of its life. Currently, both projects have the same net present value (NPV). If the firm's required rate of return increases, other things held constant, Project B will be more preferable than Project A after the rate change.

Question

Quizplus · Accepted Answer

Project A, with its larger cash inflows in the early years, will be less affected by an increase in the discount rate compared to Project B, which has its cash inflows later. The present value of Project B's later cash inflows will be reduced more significantly by the higher discount rate, making Project A more preferable.

Project a Has a Pattern of Large Cash Inflows in the Early