When the costs of an investment come before that investment's benefits, what will be 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).

Question

Quizplus · Accepted Answer

When costs of an investment come before its benefits, a rise in interest rates will increase the discount rate used for calculating the NPV, which in turn decreases the investment's NPV. This makes the investment less attractive to potential investors.

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