Suppose you consider 2 mutually exclusive projects A and B. Both projects have conventional cash flows and identical initial investments. Project A has cash flows that   gradually increase from one period to the next, while cash flows of project B gradually  decline. Both projects have the same duration. Given current discount rate, both projects have the same NPV. Alan Greenspan will decrease interest rate next week, which will decrease the discount rate.    

Which project will likely have higher NPV if, indeed, discount rate decreases?

Answer rating: 100% (QA)

When the discount rate decreases future cash flows are discounted less and are therefore worth more ... View the full answer