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Which of the following would increase the net present value of a project?


Which of the following would increase the net present value of a project?
a.increase in the net investment
b.use of straight line depreciation rather than MACRS
c.decrease in the expected accounts payable
d.decrease in the discount rate

Since the formula is

NPV = i +ia /(1+r) + ib/(1+r)^2+ ......

decreasing the denominator i.e r which is the discount rate will increase the NPV

A decrease in the discount rate. Net investment is a present factor, it is not discounted. Depreciation and accounts payable are not cash items.

d

Decrease in discount rate.

(d) Assuming that you are deriving the NPV from the future value the latter is multiplied by the discount rate. The lower the discount rate the higher the NPV.

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