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Assertion: a project with a negative net present value loses money. Reason: its benefits are worth less than its costs in present terms.

  • A.both the assertion and the reason are true and the reason explains the assertion
  • B.both the assertion and the reason are true but the reason does not explain the assertion
  • C.the assertion is true but the reason given for it is false
  • D.the assertion is false although the reason offered is a true statement in itself

Answer: D

In present terms the benefits are indeed the smaller, which is what the negative value states, but the project may still return more than it cost in absolute money. What it fails to do is beat the return the capital could earn elsewhere, which is a different and weaker charge.

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