Project H requires an initial investment of $100,000 and the produces annual cash flows of $45,000 per year for each of the next three years.Project T also requires an initial investment of $100,000 and produces cash flows of $30,000 in year 1, $40,000 in year 2, and $70,000 in year 3.If the discount rate increases from 10% to 16%
A)Project T should be chosen.
B)both projects should be rejected.
C)H and T are equally attractive.
D)the project rankings will change.

Question

Quizplus · Accepted Answer

As the discount rate increases, the present value of future cash flows decreases. Projects with cash flows occurring later in the timeline, like Project T, will be more adversely affected by a higher discount rate compared to projects with more immediate cash flows, like Project H. This can lead to a change in project rankings.

Project H Requires an Initial Investment of $100,000 and the Produces