Final answer:
If the NPV for a project is less than zero, it signifies that the project will fail to cover its required rate of return, indicating insufficient returns relative to the expected rate of return.
Step-by-step explanation:
If the NPV (Net Present Value) for a project is less than zero, it indicates that the project will fail to cover its required rate of return. This means that the present value of the project's expected cash flows (which takes into account the time value of money) is not enough to offset the initial investment. Consequently, the project is not expected to generate enough returns to meet the minimum threshold set by the expected rate of return.
The expected rate of return is a measure of how much a project or an investment is expected to return to the investor through future interest payments, capital gains, or increased profitability. When the NPV is negative, it signals to investors and decision-makers that the project may not achieve the financial performance required to justify the investment.
No matter how the discount rate is determined, a negative NPV shows that the expected rate of return will fall short of it, meaning that the project will not create value. In the context of evaluating corporate securities, the net present value calculation is often called discounted cash flow (DCF) analysis.