If a project has an internal rate of return of 12% and a negative net present value, which of the following statements is trueregarding the discount rate used for the net present value computation?

Question

Quizplus · Accepted Answer

An internal rate of return of 12% means that the project generates a return of 12% on all invested capital. A negative net present value means that the project's cash outflows exceed its cash inflows when discounted back to their present value. This suggests that the discount rate used in the net present value computation was higher than 12%. If the discount rate was equal to 12%, the project would have a net present value of zero, and if the discount rate was lower than 12%, the project would have a positive net present value. Therefore, choice A is the best answer.

If a Project Has an Internal Rate of Return of 12