Which of the following statements is necessarily true if the NPV of a project is determined to be negative?
A)The discount rate used to calculate the NPV was too high.
B)The cost of capital used to calculate the NPV is equal to the project's internal rate of return.
C)The cost of capital used to calculate the NPV is greater than the project's internal rate of return.
D)The cost of capital used to calculate the NPV is less than the project's internal rate of return.

Question

Quizplus · Accepted Answer

If the NPV of a project is negative, it means the present value of expected cash flows from the project is less than the initial cost of investment. This implies the project is not generating enough returns to cover the cost of capital. Therefore, the cost of capital used to calculate the NPV is greater than the project's internal rate of return. The other options are not necessarily true in all cases. A high discount rate may not always result in a negative NPV, and the cost of capital may not always be equal to the project's internal rate of return. A negative NPV indicates that the project is not generating enough cash flows to cover its costs, including the cost of capital. Therefore, the cost of capital used to calculate the NPV must be greater than the project's internal rate of return. If the cost of capital used was less than the project's internal rate of return, the NPV would be positive. Additionally, the discount rate used to calculate the NPV may or may not be too high, as it depends on the specific circumstances of the project. Therefore, options A and B are not necessarily true.

Which of the Following Statements Is Necessarily True If the NPV