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What is meant by “the graph of NPV against discount rate has a negative slope for most projects"

+1 Vote
March 27th 2015 AN ACCA USER 320 Points

2 Replies

+2 Votes

if you draw 2 axes X and Y. let the Y axes be NPV and the X be the discount rate. when you calculate the NPV you can plot it on the graph and by increasing the discount factor you get a new result. negative slope because the smaller the discount factor the higher the NPV. you would relies a diagonal curve shape if you draw the graph (google it for a better image). another way to look at it is if the discount factor is 0% then in one year time £1 is £1 (1 x 1/(1+0)), if the discount factor is 10% then £1 is only worth 91p (1 X 1/(1+0.1)). Hope this helps

March 27th 2015 AN ACCA USER 550 Points
0 Votes
Thank you so much , your answer helps a lot .
March 31st 2015 AN ACCA USER 320 Points 1 Flag
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