Why does a higher discount rate make a project less likely to be accepted?

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Question

Why does a higher discount rate make a project less likely to be accepted?

Accepted Answer

It produces smaller discount factors, cutting the present value of every future inflow — Award 1 mark. The effect is largest on the most distant years, so projects whose returns arrive late are penalised most.

Answer

It raises the criterion rate automatically

Answer

It reduces the forecast cash inflows

Answer

It produces smaller discount factors, cutting the present value of every future inflow

Answer

It increases the initial investment required

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