A firm is evaluating a project that has a net present value of $0 when a discount rate of 8 percent is used. A discount rate of 10 percent will result in
Group of answer choices
a net present value of $0
a negative net present value
The question cannot be answered based upon the information provided.
a positive net present value
When a project has a net present value (NPV) of $0 at a discount rate of 8 percent, it means that the project's cash flows are exactly sufficient to cover the initial investment and provide an 8 percent return. If the discount rate is increased to 10 percent, the present value of the project's future cash flows will decrease because future cash flows are being discounted at a higher rate.
As a result, the NPV will become negative because the present value of the cash flows will be less than the initial investment when discounted at 10 percent.
Therefore, the correct answer is:
a negative net present value