According to the picture below. What will happen to each of the investment criteria if we use a higher discount rate? Why? Can we generalize the way a higher discount rate affects investment criteria for all projects?

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General Assumptions Investment (1 period) Annual revenue (starting in 2nd period) Recurring operating costs Length of operation Discount rate Years $1,000 CAD $300 CAD $50 CAD 5 Years 5% Year 2020 2021 2022 2023 2025 Calculate Net Cash Flow Revenue Investment Recurring operating costs Net Cash Flow CAD ao Tao CAO 50 $1,000 $0 -$1,000 $300 $0 $50 $250 $300 $0 $50 $250 $300 30 $50 $250 $300 $0 $50 $250 $300 $0 $50 $250 $78.45 CAD $82.37 CAD $86.49 CAD 7.93% $300 $300 NPV & IRR Net Present Value (base: 2019) Net Present Value (base: 2020) Net Present Valve (base: 2021) Internal Rate of Return Benefit Cost Ratio Total benefits inflows) Total costs (outflows) Benent cost ratio (simple sum) Benent cost represent value) Payback period Investment cost Net cash inflow Cumulative cash wow Cumulative discounted cash innow 50 $1,000 $50 $300 $50 $300 $50 $50 $300 $50 CAp CAD 1.20 1.07 $1,000 CAD (CAD ICO 50 $250 $250 $250 $250 $250 50 $250 $500 $750 $1,000 $1,250 50 238.095238095238 464.852607709751 680.81200734262 886.48762604059 1,082.3691676577 #st Discussion Activity 3 - Time Value of Money & Investment Criteria 2 General Assumptions Investment (1 period) Annual revenue (starting in 2nd period) Recurring operating costs Length of operation Discount rate Years $1,000 CAD $300 CAD $50 CAD 5 Years 5% Year 2020 2021 2022 2023 2024 2025 Calculate Net Cash Flow Revenue Investment Recurring operating costs Net Cash Flow CAD ICAD CAD CAD $0 $1,000 $0 -$1,000 $300 $0 $50 $250 $300 $0 $50 $250 $300 $0 $50 $250 $300 $0 $50 $250 $300 $0 $50 $250 NPV & IRR Net Present Value (base: 2019) Net Present Value (base: 2020) Net Present Value (base: 2021) Internal Rate of Return $78.45 CAD $82.37 CAD $86.49 CAD 7.93% Benefit Cost Ratio Total benefits (inflows) Total costs (outflows) Benefit cost ratio (simple sum) Benefit cost ratio (present value) so $1,000 $300 $50 $300 $300 $50 $300 $50 $300 $50 $50 ICAD CAD 1.20 1.07 Payback period Investment cost Net cash inflow Cumulative cash inflow Cumulative discounted cash inflow $1,000 CAD |CAD ICAD ICAD $0 $0 $0 $250 $250 $238 $250 $500 $465 $250 $750 $681 $250 $1,000 $886 $250 $1,250 $1,082 General Assumptions Investment (1 period) Annual revenue (starting in 2nd period) Recurring operating costs Length of operation Discount rate Years $1,000 CAD $300 CAD $50 CAD 5 Years 5% Year 2020 2021 2022 2023 2025 Calculate Net Cash Flow Revenue Investment Recurring operating costs Net Cash Flow CAD ao Tao CAO 50 $1,000 $0 -$1,000 $300 $0 $50 $250 $300 $0 $50 $250 $300 30 $50 $250 $300 $0 $50 $250 $300 $0 $50 $250 $78.45 CAD $82.37 CAD $86.49 CAD 7.93% $300 $300 NPV & IRR Net Present Value (base: 2019) Net Present Value (base: 2020) Net Present Valve (base: 2021) Internal Rate of Return Benefit Cost Ratio Total benefits inflows) Total costs (outflows) Benent cost ratio (simple sum) Benent cost represent value) Payback period Investment cost Net cash inflow Cumulative cash wow Cumulative discounted cash innow 50 $1,000 $50 $300 $50 $300 $50 $50 $300 $50 CAp CAD 1.20 1.07 $1,000 CAD (CAD ICO 50 $250 $250 $250 $250 $250 50 $250 $500 $750 $1,000 $1,250 50 238.095238095238 464.852607709751 680.81200734262 886.48762604059 1,082.3691676577 #st Discussion Activity 3 - Time Value of Money & Investment Criteria 2 General Assumptions Investment (1 period) Annual revenue (starting in 2nd period) Recurring operating costs Length of operation Discount rate Years $1,000 CAD $300 CAD $50 CAD 5 Years 5% Year 2020 2021 2022 2023 2024 2025 Calculate Net Cash Flow Revenue Investment Recurring operating costs Net Cash Flow CAD ICAD CAD CAD $0 $1,000 $0 -$1,000 $300 $0 $50 $250 $300 $0 $50 $250 $300 $0 $50 $250 $300 $0 $50 $250 $300 $0 $50 $250 NPV & IRR Net Present Value (base: 2019) Net Present Value (base: 2020) Net Present Value (base: 2021) Internal Rate of Return $78.45 CAD $82.37 CAD $86.49 CAD 7.93% Benefit Cost Ratio Total benefits (inflows) Total costs (outflows) Benefit cost ratio (simple sum) Benefit cost ratio (present value) so $1,000 $300 $50 $300 $300 $50 $300 $50 $300 $50 $50 ICAD CAD 1.20 1.07 Payback period Investment cost Net cash inflow Cumulative cash inflow Cumulative discounted cash inflow $1,000 CAD |CAD ICAD ICAD $0 $0 $0 $250 $250 $238 $250 $500 $465 $250 $750 $681 $250 $1,000 $886 $250 $1,250 $1,082