Project A has a pattern of high cash inflows in the early years, while Project B has majority of its cash inflows in the later years. At the current required rate of return, Projects A and B have identical NPVs. Assuming that interest rates are increasing, other things held constant, this change will cause B to become more preferable than A.
Answer the following statement true (T) or false (F)
False
If a project has most of its cash flows coming in the early years, its NPV will not be lowered as much if the required rate of return increases as the NPV of a project whose cash flows come later in its life. Accordingly, a project that has its largest cash flows in later years is hurt badly when the required rate of return is high. A project which has relatively rapid cash flows, is affected less by high discount rates. See 9-3: Comparison of the NPV and IRR Methods
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Answer the following statement true (T) or false (F)