- CFA Exams
- CFA Exam: Level I 2021
- Study Session 10. Corporate Finance (1)
- Reading 32. Capital Budgeting
- Subject 4. NPV Profiles

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**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.

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**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 |