The NPV of a factory is the present discounted value of all the cash flows involved in building and operating it. Here it is the PDV of the flow of future profits less the current cost of construction.The NPV declines as the interest rate increases.At interest rate R*,the NPV is zero.The NPV of a factory is the present discounted value of all the cash flows involved in building and operating it. Here it is the PDV of the flow of future profits less the current cost of construction. The NPV declines as the interest rate increases. At interest rate R*, the NPV is zero