When the costs of an investment come before that investment's benefits,what will be the the effect of a rise in interest rates on the attractiveness of that investment to potential investors?
A)It will make it more attractive,since it will increase the investment's net present value (NPV).
B)It will make it more attractive,since it will decrease the investment's net present value (NPV).
C)It will make it less attractive,since it will increase the investment's net present value (NPV).
D)It will make it less attractive,since it will decrease the investment's net present value (NPV).
E)It will be unchanged,since NPV calculations ignore changes in interest rates to more accurately compare the NPVs of projects beginning at different times.

Question

Quizplus · Accepted Answer

When costs come before benefits, the investment's NPV will decrease as interest rates increase. This is because a higher discount rate will decrease the present value of the future benefits, while the costs remain constant. Therefore, the investment will be less attractive to potential investors.

When the Costs of an Investment Come Before That Investment's