CFA Practice Question

There are 233 practice questions for this study session.

CFA Practice Question

Which of the following statements is true?

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
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