Other things being equal,the higher the cost of capital

Question

Quizplus · Accepted Answer

The cost of capital represents the required rate of return on investment for the firm. If the cost of capital is high, it means that the project needs to generate higher returns to be considered worth investing in. Therefore, the project's NPV will decrease as the cost of capital increases since the future cash flows generated by the project are discounted at a higher rate. This makes option C the best choice. Options A and B are incorrect because they suggest that higher cost of capital leads to higher NPV or IRR, which is not true. Option D is also incorrect as the cost of capital directly affects the discount rate used to calculate the present value of cash flows, and thus has a direct effect on the NPV of the project.

Other Things Being Equal,the Higher the Cost of Capital