What should occur when a Project's net present value is determined to be negative?
A)The discount rate should be decreased
B)The profitability index should be calculated
C)The present value of the project cost should be determined
D)The project should be rejected

Question

Quizplus · Accepted Answer

If a project's net present value is found to be negative, it means that the present value of cash outflows exceeds the present value of expected cash inflows, and the project is therefore not expected to generate sufficient profits to justify its costs. In this case, the project should be rejected because it is not expected to be profitable. Decreasing the discount rate or calculating the profitability index will not change the fact that the project is unprofitable. Determining the present value of the project cost is important, but it does not provide a solution to the problem of negative net present value.

What Should Occur When a Project's Net Present Value Is