If the net present value of a proposed investment is negative: the investment wi

Question

If the net present value of a proposed investment is negative:

the investment will not be made

the cost of capital is higher than the internal rate of return

the cost of capital is negative

the cost of capital is lower than the internal rate of return

the internal rate of return is negative

two of the above statements are correct

three of the above statements are correct

four of the above statements are correct

all of the above statements are correct

A)

the investment will not be made

B)

the cost of capital is higher than the internal rate of return

C)

the cost of capital is negative

D)

the cost of capital is lower than the internal rate of return

E)

the internal rate of return is negative

F)

two of the above statements are correct

G)

three of the above statements are correct

H)

four of the above statements are correct

I)

all of the above statements are correct

Explanation / Answer

If Net present value of the investment is negative then there is no profit with that investment and in addition nead to bear losses.

Hence, A) the investment will not be made.

B) Cost of capital will be higher than IRR, since NPV is negative.

In the given statement these two options are correct hence, "option (F) two of the above statements are correct" is correct.

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