Cost of Capital: Increasing Cash Flow Conceptual Overview: Explore how the cost of capital affects the net present value of an investment project's increasing cash flow. This graph shows the not present value of an investment with annual con flow of $1,000 $100 $300, 400, and $675 as a function of different costs of capital interest %). Note that this cash flow retums increasing amounts after the intalnestment Drag loft or right on the graph to move the cursors to see the net present value (NPV) for different costs of capital. The point where the curve crosses the X-as determines the internal rate of return (IRR) (Note: due toimited pored resolution, it is sometimes difficut to get to that precise point.) NPV = CF,+2A --$1,000+ (1-51986) + (1861867+ $400 *(1 +0.116p+ usor = $46.06 NPV (5) O 300 100 0 NO 10 100 Cost of Capital 1. What is the approximate IRR for the cash flow curve depicted? a. 10% b. 13.5% C. 15% d. 17.5% -Select- 2. When the cost of capital is greater than a project's IRR, the NPV for the project is a. negative b. equals the project's IRR C. positive d. cannot be determined -Select- 3. If the cost of capital decreases, the NPV for the project a. increases b. stays the same G. decreases d. cannot be determined -Select- 4. In the unrealistic situion in which the cost of capital were zero, the NPV of the project a. Is the sum of the cash flows b. is the upper limit for the NPV of the project c. both of the above statements are correct d. neither of the first two statements is correct -Select