The net present value (NPV) of a project is negative when the discount rate used is:

Question

Quizplus · Accepted Answer

A negative NPV indicates that the present value of cash inflows is less than the present value of cash outflows. This would occur when the discount rate used to calculate the NPV is greater than the internal rate of return (IRR), which is the rate at which the project's cash inflows equal its outflows. Therefore, choice C is the correct answer. Choice A is incorrect because if the discount rate equals the IRR, the NPV is zero. Choice B is incorrect because the yield to maturity of bonds has no direct impact on the NPV of a project. Choice D is incorrect because the coupon rate of bonds is also irrelevant to the NPV of a project. Choice E is incorrect because if the discount rate is less than the IRR, the NPV would be positive.

The Net Present Value (NPV) of a Project Is Negative