CFA Level 1

Corporate Finance - The NPV Profile


The NPV profile is a graph that illustrates a project's NPV against various discount rates, with the NPV on the y-axis and the cost of capital on the x-axis. To begin, simply calculate a project's NPV using different cost-of-capital assumptions. Once these are calculated, plot the values on the graph.

Figure 11.5


Look Out!
Since the IRR is the discount rate where the NPV of a project equals zero, the point where the NPV crosses the x-axis is also the project's IRR.
 



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