If the net present value of a proposed investment is negative,
A) the cost of the investment is less than the present value of the future cash flows.
B) the investment earns the required rate of return.
C) the present value of the future cash flows would be unaffected by the proposed investment.
D) the firm should not make the investment, since the present value of the future cash flows is less than the cost of the investment.

Question

Quizplus · Accepted Answer

When the net present value of a proposed investment is negative, it means that the present value of the expected cash inflows is less than the initial cost of the investment. Therefore, the firm should not make the investment since the expected return is less than the cost of the investment.

If the Net Present Value of a Proposed Investment Is