The project whose cash flows are less than the capital invested for required rate of return then the net present value will be ___________?
Correct answer: A. negative
- A. negative
- B. zero
- C. positive
- D. independent
Explanation
When the present value of project inflows is below the required investment, the project destroys value at the required return. Since NPV equals present value of inflows minus investment, it is negative.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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