Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 220

A capital investment project will have a higher net present value, everything else being equal, if it has:

Answer options

• A. A higher initial investment level.
• B. A higher discount rate.
• C. Cash inflows that are larger in the later years of the life of the project.
• D. Cash inflows that are larger in the earlier years of the life of the project.

Correct answer: D

Explanation

The correct answer is D because cash inflows received earlier have a higher present value compared to those received later, due to the time value of money. Options A and B do not directly contribute to increasing net present value, and option C would actually decrease net present value as later cash inflows are discounted more heavily.