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CIMAPRO19-P02-1 Exam - Topic 7 Question 125 Discussion

You have just assessed an investment proposal, involving an immediate cash outflow followed by a series of cash inflows over the next 7years, by deducing the NPV and the IRR. You have now discovered that you haveunderestimated the discount rate.Correcting the underestimation will have the following effect, relative to your original deductions:
A) NPV will reduce, IRR will not change
B) NPV and IRR will not change
C) NPV will increase, IRR will reduce
D) NPV and IRR will both increase
E) Not enough information given for an answer

CIMAPRO19-P02-1 Exam - Topic 7 Question 125 Discussion

Actual exam question for CIMA's CIMAPRO19-P02-1 exam
Question #: 125
Topic #: 7
[All CIMAPRO19-P02-1 Questions]

You have just assessed an investment proposal, involving an immediate cash outflow followed by a series of cash inflows over the next 7years, by deducing the NPV and the IRR. You have now discovered that you have

underestimated the discount rate.

Correcting the underestimation will have the following effect, relative to your original deductions:

Show Suggested Answer Hide Answer
Suggested Answer: A

by Marti at May 07, 2026, 07:46 AM

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Carlene
9 hours ago
Wait, how can IRR not change? That seems off.
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Rusty
6 days ago
Totally agree, NPV drops but IRR stays the same.
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Kiera
11 days ago
NPV will definitely reduce with a higher discount rate.
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Tresa
16 days ago
I recall that if the discount rate is underestimated, correcting it usually means NPV goes down, but I can't remember if IRR stays the same or not.
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Linwood
2 months ago
I feel like the IRR is more about the rate of return rather than the discount rate itself, so I'm a bit confused about how it would change.
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Donte
2 months ago
I think I practiced a similar question where a higher discount rate led to a lower NPV, so maybe A is correct?
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Kandis
2 months ago
I remember that increasing the discount rate generally decreases the NPV, but I'm not sure how it affects the IRR.
upvoted 0 times
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