Given a positive discount rate,which one of the following changes would increase the NPV of a project?
A) Increasing the firm's opportunity cost of capital
B) Reducing the amount of working capital that is needed.
C) Spreading the total cash inflows over a longer time interval
D) Increasing the project's estimated expenses

Question

Quizplus · Accepted Answer

A positive discount rate means that cash flows in the future are worth less than cash flows today. Therefore, reducing the amount of cash needed today (i.e. reducing working capital) will increase the NPV by reducing the amount of cash that needs to be discounted at the opportunity cost of capital. A and D would both decrease the NPV, while C would not necessarily increase the NPV as it could lead to lower present value of cash inflows due to greater discounting.

Given a Positive Discount Rate,which One of the Following Changes