A clinic’s management team has estimated the NPV for a proposed project at $15,0

Question

A clinic’s management team has estimated the NPV for a proposed project at $15,000. All else held constant, which of the following would increase the project’s estimated NPV?

An increase in the initial investment cost

A two-year delay in the receipt of the project’s initial net operating cash flows (assuming the expected cash flows are positive)

An increase in the project’s risk

An increase in the corporate cost of capital

None of these answers is correct

An increase in the initial investment cost

A two-year delay in the receipt of the project’s initial net operating cash flows (assuming the expected cash flows are positive)

An increase in the project’s risk

An increase in the corporate cost of capital

None of these answers is correct

Explanation / Answer

Answer:None of these answers is correct

Increase in cashflow would result only by increase in cashinflow.

An increase in the initial investment cost - this would increase outflow and lower NPV

A two-year delay in the receipt of the project’s initial net operating cash flows - will be expsed to lower pvifa resulting in lower NPA

An increase in the project’s risk - high risk project should be found using a relatively high WACC - thereby reducing pvifa factors and then lowering NPV.

An increase in the corporate cost of capital - This would lower NPV.

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