An increase in the cost of capital will cause the NPV to an

An increase in the cost of capital will cause the NPV to _______ and the profitability index to _____.

increase; increase

increase; decrease

decrease; increase

decrease; decrease

Solution

d is the answer - decrease,decrease

An increase in cost of capital will lead to decrease in NPV. This is similar for profitability index as
Profitability Index = (PV of future cash flows/initial investment)