Question: A financial manager is evaluating a project and calculates a net present value (NPV) Of $1, An internal rate of return (IRR) of 12.01%, and

A financial manager is evaluating a project and calculates a net present value (NPV) 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 this affect the NPV of the project?

NPV Will decrease.
NPV Will increase.
NPV Will change in proportion to IRR
NPV Will stay the same

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