If a firm undertakes a project with ordinary cash flows and estimates that the firm has a negative NPV, then the IRR will be

Question

Quizplus · Accepted Answer

If the firm estimates a negative NPV for a project with ordinary cash flows, it means that the cost of the project exceeds the present value of the expected cash flows. The IRR is the discount rate that makes the NPV of the project equal to zero. Therefore, if the NPV is negative, the IRR must be less than the cost of capital (the discount rate used to calculate the NPV).

If a Firm Undertakes a Project with Ordinary Cash Flows