Question: A financial manager is evaluating a project and calculate a net present value (NVP) of $1, an internal rate of return (IRR), of 12.01% and

A financial manager is evaluating a project and calculate a net present value (NVP) of $1, an internal rate of return (IRR), of 12.01% and a profitability index (PI) of 1.01. The estimated cost of capital is 12%. After making these calculations, the manager realizes that the inflation rate was underestimated.

How will the affect the NVP of the project?

NVP will change in proportion to IRR

NVP will decrease

NVP will increase

NVP will stay the same

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