Multiple choice general knowledge math & puzzles

An analyst is developing net present value (NPV) profiles for two investment projects. The only difference between the two projects is that Project 1 is expected to receive larger cash flows early in the life of the project, while Project 2 is expected to receive larger cash flows late in the life of the project. The slope of the NPV profile for Project 1 when compared to the slope of the NPV profile for Project 2 is most likely:

  1. equal.

  2. flatter

  3. steeper

  4. unequal
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Early cash flows (Project 1) are discounted less heavily, so their NPV changes less as the discount rate varies, resulting in a flatter NPV profile slope. Project 2's late cash flows are more sensitive to discount rate changes, giving a steeper slope. The projects are not equal or simply unequal.

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