What effect will an increase in the discount rate have on the present value of a project that has an initial cash outflow followed by five years of cash inflows?
A)There will be no effect on the PV.
B)The PV will change but the direction of the change is unknown.
C)The PV will remain the same as the timing of the cash flows must change also.
D)The PV will increase.
E)The PV will decrease.

Question

Quizplus · Accepted Answer

An increase in the discount rate will cause a decrease in the present value of future cash flows. As a result, the present value of the project, which has an initial cash outflow and cash inflows in the future, will decrease.

What Effect Will an Increase in the Discount Rate Have