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Which one of the following will decrease the net present value of a project?

The net present value is a way to evaluate the profitability of a project that takes into account how much money can be saved by delaying its completion for one year. The formula for calculating the NPV is:

NPV = PV(1-t) / (1+r)

In other words, net present value equals the present value divided by (1+rate). This equation assumes that you would be willing to delay the project for one year if it would give you $10,000 in pocket money at the end of that year. So, what does this finance term mean? Let’s break down each variable and look at the different options in order to find out.



What is the net present value?

The net present value is a finance term that measures how much money is available in the future. To calculate this, you need to take into account the size of the project and what kind of return you would get from its completion.

To do this, you need to use a formula:

NPV = PV(1-t) / (1+r)

This equation assumes that you would be willing to delay the project for one year if it would give you $10,000 in pocket money at the end of that year.

So, what does this finance term mean? Let’s break down each variable and look at the different options in order to find out.


How to calculate the net present value

The net present value is the amount of money you would have if you were to invest it instead of spending it today. The formula for calculating the NPV is:

NPV = PV(1-t) / (1+r)

In other words, net present value equals the present value divided by (1+rate). This equation assumes that you would be willing to delay the project for one year if it would give you $10,000 in pocket money at the end of that year. So, what does this finance term mean? Let’s break down each variable and look at the different options in order to find out.

The PV and t will always be positive because they are defined as a dollar amount rather than a percentage of your total assets. The rate variable will always be positive because anything greater than 1 means you are receiving more back than you put into the project.

So, let's take a look at some examples in order to see how these variables change and what effect they have on the net present value.

If I invested $10,000 today with a 5% rate of return, my NPV would be $8000. If I invested $10,000 today with


Which one of the following will decrease the net present value?

A. Increasing the investment by $1,000

B. Increasing the investment from $10,000 to $11,000

C. Decreasing the number of years that would be delayed from one year to two

D. Decreasing the rate of return for delaying completion of the project from 10% to 5%

E. Decreasing the investment amount from $10,000 to $9,000


Increasing the investment by $1,000 will decrease NPV because this will increase your costs and therefore make it a less profitable decision to delay completion of the project for one year.


Conclusion

The net present value is the sum of the discounted cash flow from an asset minus the sum of the discounted cash flow from debt.

The answer to this question depends on what type of project is being evaluated. If the project is a factory, then the net present value will be lower if the company borrows money to build it. Conversely, if the project is a new innovation, then the net present value will be higher if the company does not need to borrow money to get it built.

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