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Elaborate on why the net present value (NPV) of a relatively long-term project is much more sensitive to changes in the cost of capital than is the NPV of a short-term project. Give two illustrations of NPV which support your position.

Examine the reasons describe why the short-term project which you have chosen might be ranked higher beneath the NPV criterion if the cost of capital is high, whereas the long-term project might be deemed better if the cost of capital is low. Find out whether or not changes in the cost of capital could ever cause a change in the internal rate of return (IRR) ranking of two such projects. Give an illustration of such a change-or the lack of one-to support your position.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915864

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