Which of the following is true of NPV profile?
A) It is used for evaluating and comparing independent projects when conflicting ranking exists.
B) It is a graph that illustrates a project's IRR against various values of NPV.
C) It shows an inverse relationship between a project's IRR and NPV.
D) It charts the net present value of a project as a function of the cost of capital.

Question

Quizplus · Accepted Answer

The NPV profile charts the net present value of a project as a function of the cost of capital, allowing for the selection of the optimal cost of capital for the project. Option A describes the use of a profitability index for comparing independent projects. Option B describes an IRR profile, not an NPV profile. Option C is incorrect as IRR and NPV have a positive relationship, not an inverse relationship.

Which of the Following Is True of NPV Profile