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SSC Audit Tax Finance P-II QUESTION #6170
Question 1
When calculating the Net Present Value of a 5-year project, if the discount rate increases, what happens to the NPV?
  • It increases
  • It decreases✔️
  • It remains unchanged
  • It becomes zero immediately
Correct Answer Explanation
Because the discount factor $(1+i)^n$ is in the denominator, a higher $i$ results in a lower Present Value of future cash flows, thus decreasing NPV.