Home Grades Personalized Reviews DiscussionCourse Materials The Basics of Capita

Question

Home Grades Personalized Reviews DiscussionCourse Materials The Basics of Capital Budgeting Graded Assignment | Read Chapter 11 | Back to Due Sunday 07.01.18 at 11:45 PM Attempts: 5. NPV profiles An NPV profie plots a project's NPV at various costs of capital. A project's NPV profilie is shown as foilows. Identify Keep the Highest:/3 Aa Aa the range of costs of capital that a firm would use to accept and reject this project. NPV Dollars 400 300 200 100 -100 200 0 2410 12 14 16 18 20 COST OF CAPITAL (Percent This NPV profile demonstrates that as the cost of capital increases, the project's NPV MacBook Air

Explanation / Answer

The line sloping downwards from left to right ( blue colored line ) ..... indicates fall ( decrease ) in the value of NPV as we move right on X- axis ( i.e cost of capital is increasing ). Thus cost of capital and NPV are inversly related.

The NPV Profile demonstrates that as the cost of capital increases, the projects NPV decreases

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