If a project has a negative NPV, then ____.

Question

Quizplus · Accepted Answer

A negative NPV means that the present value of expected cash inflows is less than the present value of expected cash outflows. Therefore, the present value of the project's benefits is less than the present value of its costs. In other words, the project is expected to lose value over time. The PI (profitability index) is calculated by dividing the present value of expected cash inflows by the present value of expected cash outflows. When the NPV is negative, the present value of expected cash inflows is less than the present value of expected cash outflows, which means the PI will be less than one. Therefore, choice D is the correct answer. The payback period and present value payback period are based on the timing of cash inflows and outflows, so they are not necessarily related to the NPV being negative.

If a Project Has a Negative NPV, Then ____