A NPV profile is a graph showing the relationship between a project's NPV and the firm's cost of capital. The point where a project's net present value profile crosses the horizontal axis indicates a project's internal rate of return.
|poomie83: So when the npv crosses beyond the irr horizontal line does that mean npv is less than zero?|
|sagrr: yes, if you choose discount rate above (horizontally) where NPV crosses the horizontal axis, NPV will be less than zero. In this case, for example, for A, a discount rate above 11.8% would result in a negative NPV|
|bear1234: I was under the impression that NPV can not be less than zero|
|jonan203: bear1234 - NPV can be any positive or negative value, in practice a project which yields a NPV that is negative would not be selected|
|darnoor871: This was much easier to understand than the book. Straight forward and to the point.|