Practice questions, I get 8% to be correct but CFA says C is correct. Shouldn’t a lower discount rate lead to a higher npv since a higher one will cause the money to be worth less today?
Thanks!
Practice questions, I get 8% to be correct but CFA says C is correct. Shouldn’t a lower discount rate lead to a higher npv since a higher one will cause the money to be worth less today?
I get the same numbers that CFAI does.
There are both positive and negative cashflows
\begin{array}{|l|r|r|r|r|r|r|} \hline &Year 0&Year 1&Year 2&Year 3&Year 4&Net NPV\cr \hline &-4662005&22610723&-41072261&33116550&-10000000&\cr \hline PV\;8\% &-4662005&20935855&-35212844&26288985&-7350299&-307.59\cr PV\;10\%&-4662005&20555203&-33944017&24880954&-6830135&-0.01\cr PV\;15\%&-4662005&19661498&-31056530&21774669&-5717532&99.93\cr \hline \end{array}
I also get the same values but just looking at the question shouldn’t I be able to just assume that lower discount rates will have a higher npv?
There are both positive and negative cashflows is the complicating factor.
If all the cashflows were positive, or all the cashflows were negative, the answer to your question would be yes