If a capital budgeting project has a negative net present value (NPV),

Question

Quizplus · Accepted Answer

A negative NPV means the project's cash outflows exceed its cash inflows, resulting in a loss for the firm. This also implies that the project does not generate returns that exceed the firm's required rate of return or discount rate. Therefore, the project's IRR must be lower than the discount rate. However, we cannot determine whether the IRR is negative or positive based on this information alone. The DPB is the number of years it takes to recover the initial investment in present value terms. If the DPB is longer than the project's economic life, it means that the project does not generate enough cash flows to recover the initial investment within its lifetime, which is undesirable. Therefore, the best choice is B. Option A, C, D, and E are not accurate in this context.

If a Capital Budgeting Project Has a Negative Net Present