Corporate Finance Q61

61While developing the net present value (NPV) profiles for two investment projects, the analyst notes the only difference between the two projects is that Project Alpha is expected to receive larger cash flows early in the life of the project, while Project Beta is expected to receive larger cash flows late in the life of the project. The sensitivities of the projects’ NPVs to changes in the discount rate is best described as:

Option : B
Explanation : A delay in the receipt of cash flows (as in Project Beta) will make a project’s net present value more sensitive to changes in the discount rate.

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