If a project’s NPV is negative, which of the following statements is CORRECT? a

Finance Dec 21, 2020

If a project’s NPV is negative, which of the following statements is CORRECT?

a. The project earns less than the cost of capital.

b. The investment will not add value or contribute to shareholder wealth.

c. The present value of expected cash outflows is greater than the present value of expect cash inflows.

d. All of the above.

Expert Solution

Answer - All of the above

Explaination -

NPV or the net present value of a project is a decision making method which takes in to consideration the rate at which the company borrows money, to find the present value of its cashflows on a project investment to decide whether they should invest in the project or not.

If the projects discounted cash inflows are more than the projects discounted cash outflows, the investment adds value to the investors wealth and the project is said to be favourable.

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