Question

When the net present value is negative, the internal rate of return is __________ the cost of capital.

A.greater than
B.greater than or equal to
C.less than
D.equal to
E.none of the above

Answer 1

When net Present value is negative, IRR is less than Cost of Capital.

Option C is correct.

NPV is negative, implies that the discounted future cash flows are less than the initial investment. And the discount rate used is more than the IRR. NPV is zero when IRR = cost of capital, since NPV is negative, IRR is less than Cost of Capital