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Basic Question 20 of 29
Which of the following statements is true?
B. The NPV profile is a graph that plots a project's IRR against the discount rates.
C. The NPV profile is a graph that plots a project's NPV against the discount rates.
A. The NPV profile is a graph that plots a project's NPV against the internal rates of return.
B. The NPV profile is a graph that plots a project's IRR against the discount rates.
C. The NPV profile is a graph that plots a project's NPV against the discount rates.
User Contributed Comments 7
| User | Comment |
|---|---|
| kalps | Where the graph crosses the x axis is the IRR i.e. where NPV = 0 |
| kalps | NPV profile: Plots the cost of capital against the NPV for an investment |
| teddajr | Any suggestions, Why A is also not true? |
| thekapila | A is not true because the graph is platted against cost of capital. IRR is when it crosses x axis. |
| LogicMan | Agreed. A is not true. |
| johntan1979 | Logic tells you that a graph for A would mean that the IRR can be anything from negative infinity to positive infinity on the horizontal line (NPV=0) |
| jonan203 | thekapila - A is not true because the IRR rate of return is where the NPV intersects with the X axis which is the cost of capital (discount rate) any point on the line above the x axis is a discout rate which will not discount the NPV of the cashflows to zero |
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Learning Outcome Statements
describe the capital allocation process, calculate net present value (NPV), internal rate of return (IRR), and return on invested capital (ROIC), and contrast their use in capital allocation
CFA® 2024 Level I Curriculum, Volume 2, Module 5.