What is the NPV of a project if IRR < discount rate (Assuming that the first cash flow is negative and all of the cash flows from the project are positive)?
< 0 |
||
> 0 |
||
= 0 |
||
None |
Answer: <0
At IRR, NPV = 0 |
PV of Cash Inflows = PV of Cash Outflows |
IRR gives the rate of return generated by the project. |
A project has to be accepted only if it generates the return atleast equal to Cost of Capital. |
i.e., A project has to be accepted only if the IRR is equal to or greater than Discount Rate. |
If IRR < Discount Rate, the project is generating Return less than the Cost of Capital. |
Therefore, NPV will be negative, i.e., NPV<0 |
Get Answers For Free
Most questions answered within 1 hours.