Which statement about an NPV profile graph is true?
A)An NPV profile graph shows how a project's payback varies as the cost of capital changes.
B)The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases.
C)An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life.
D)An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital.

Question

Quizplus · Accepted Answer

An NPV profile graph is designed to show how a project's contribution to the firm's value varies with the cost of capital. It plots the NPV of a project against different discount rates (cost of capital), giving decision makers an idea of how sensitive the project's value is to changes in the cost of capital. The slope of the graph can be positive or negative depending on the nature of the project's cash flows.

Which Statement About an NPV Profile Graph Is True