Cost of Capital: Increasing Cash Flow ConceptuOerview: Explore how the cost of capital affects the net present value of an investment project's increasing cash flow. Ths graph shows he net present value o an investment with annual cash fo s o S1 000 S 100 $300 400 S675 as a un on o different costs o capital interest %). Note that this cash tow etums creasing amounts after he initial n est ent. Drag eft o 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-axis d internal rate of return (IRR). (Nate: due to limited pixel resolution, it is sometimes dfficult to get to that precise point.) determines the (1+0.1(10)' ' (1+0.oxx 2 ' (140,1000), ' (140,1000" NPV (S) 500 400 300 10 10 20 Cost of 1. What is the approximate IRR for the cash flow curve depicted? a. 1096 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 c. 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