- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 5. Capital Investments and Capital Allocation
- Subject 2. Capital Allocation
CFA Practice Question
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.
Correct Answer: C
The NPV profile is a graph showing the relationship between a firm's cost of capital and the net present value of an investment project.
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 |