The net present value profile

Question

Quizplus · Accepted Answer

The net present value profile graphically portrays the relationship between the discount rate and the net present value. It shows how the net present value changes as the discount rate varies. This helps in identifying the range of discount rates that make the project viable and profitable. The option A is not correct as the net present value can be negative for a project, especially in the initial years, and it may still be considered viable if the future inflows are substantial enough. The option B is incorrect as the net present value profile is not a substitute for the internal rate of return (IRR), which is another method for evaluating investment opportunities.

The Net Present Value Profile