If the internal rate of return is less than the discount rate, then the net present value of a project is
A)positive.
B)negative.
C)zero.
D)one.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the rate at which the present value of cash inflows equals the present value of cash outflows. If this rate is less than the discount rate, it means the project's cash flows are not generating returns as high as the cost of capital. In other words, the project is not profitable enough to cover the cost of financing, and the net present value (NPV) will be negative. Therefore, the best choice is B, which means the NPV is negative.

If the Internal Rate of Return Is Less Than the Discount