A project has a positive net present value (NPV) when discounted at a company's weighted...

CIMA P2 Question Answer

A project has a positive net present value (NPV) when discounted at a company's weighted average cost of capital (WACC). The project has also been evaluated using a range of other investment appraisal techniques.

It has now been recognized that the project is of much higher risk than the average risk of the company's existing portfolio of projects. It has therefore been decided that the discount rate to be used when evaluating this project should be the WACC adjusted for risk.

As the result of changing the discount rate as described, which of following statements are correct?

Select ALL that apply.

The net present value would decrease.

The internal rate of return would decrease.

The accounting rate of return would decrease.

The internal rate of return would remain unchanged.

The profitability index would remain unchanged.

The net present value would increase.