Question

The present value ratio of a proposed investment will be:

A. less than 1.0 if the net present value is positive.
B. negative if the proposed investment meets the cost of capital target.
C. less than 1.0 if the net present value is negative.
D. greater than 1.0 if the cost of capital exceeds the internal rate of return

Answer 1

The present value ratio of a proposed investment will be less than 1.0 if the net present value is negative.

Step-by-step explanation:

The correct answer is option C. The present value ratio of a proposed investment will be less than 1.0 if the net present value (NPV) is negative. NPV is a financial metric used to determine the value of an investment by comparing the present value of its expected cash flows to the initial cost of the investment. If the NPV is negative, it means that the present value of the expected cash flows is less than the initial cost, resulting in a present value ratio of less than 1.0.

For example, if an investment has an initial cost of $10,000 and the present value of its expected cash flows is $8,000, the NPV is -$2,000. Since the NPV is negative, the present value ratio will be less than 1.0.