In a capital budgeting decision, if a firm uses the net present value method and a 12% discount rate, what does a negative net present value indicate?
A) the proposal's rate of return exceeds 12%.
B) the proposal's rate of return is less than the minimum rate required.
C) the proposal earns a rate of return between 10% and 12%.
D)none of the above.

Question

Quizplus · Accepted Answer

A negative net present value indicates that the present value of expected cash flows from the proposed investment is less than the initial investment cost, discounted at the required rate of return (in this case, 12%). This means that the proposal's rate of return is less than the minimum rate required by the firm, making it unattractive and potentially not feasible for the firm to pursue.

In a Capital Budgeting Decision, If a Firm Uses the Net