When charting a project's NPV profile, the curve will cross the horizontal axis at
A) the project's break-even discount rate.
B) at the project's internal rate of return (IRR).
C) when NPV=0.
D) all of the above.

Question

Quizplus · Accepted Answer

The NPV profile plots the net present value of a project at different discount rates. The curve crosses the horizontal axis when NPV equals 0, which represents the project's break-even point. At this point, the project isn't generating any profit or loss. If we move to the left of the break-even point on the curve, the NPV is positive, indicating that the project is profitable. When we move to the right of the break-even point, the NPV is negative, indicating that the project is not-profitable. The intersection of the curve and the horizontal axis represents the project's IRR, which is the discount rate that makes the NPV equal to zero. Therefore, all of the above choices are correct.

When Charting a Project's NPV Profile, the Curve Will Cross