If the opportunity cost of capital for a lending project exceeds the project's IRR, then the project has a(n):
A) positive NPV.
B) negative NPV.
C) acceptable payback period.
D)positive profitability index.

Question

Quizplus · Accepted Answer

The opportunity cost of capital represents the cost of the best forgone alternative, and serves as a benchmark to evaluate the investment's returns. If the opportunity cost of capital is higher than the project's IRR, it means that the project does not generate enough returns to compensate for the cost of capital, and therefore the NPV of the project is negative. As a result, the best choice is B, negative NPV. Choices A, C, and D are all inconsistent with the information given in the question.

If the Opportunity Cost of Capital for a Lending Project