A new forklift under consideration by Home Warehouse requires an initial investment of $100,000 and produces annual cash flows of $50,000, $40,000, and $30,000. Which of the following will not change if the required rate of return is increased from 10% to 12%.
A) The net present value.
B) The internal rate of return.
C) The profitability index.
D) The modified internal rate of return.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) will not change because it is based solely on the cash inflows and outflows of the investment and not on the required rate of return. However, the net present value (NPV), profitability index (PI), and modified internal rate of return (MIRR) will all change as these are affected by changes in the required rate of return.

A New Forklift Under Consideration by Home Warehouse Requires an Initial