A project sponsor is reviewing a project that has a Net Present Value (NPV) of -$15,000. What should the sponsor recommend?
A negative NPV means the project's discounted future cash inflows are worth less than the initial investment, destroying value. Rejecting it is the financially sound recommendation, satisfying the stem's constraint that the sponsor act on the -$15,000 figure.
Why this answer
Net Present Value measures the difference between the present value of cash inflows and outflows; a negative NPV means the project is expected to destroy value at the required discount rate. The sponsor should therefore reject the project, since accepting a negative-NPV project would reduce shareholder value. NPV is the primary capital-budgeting criterion, so a negative result is a clear reject signal.
Exam trap
The trap here is confusing IRR with NPV — candidates see 'positive IRR' and assume the project is viable, forgetting that IRR must be compared against the hurdle rate and that NPV is the authoritative decision metric.
How to eliminate wrong answers
Option A is wrong because proceeding on a negative NPV contradicts the fundamental rule that only positive-NPV projects add value. Option C is wrong because IRR is a secondary metric; a positive IRR does not override a negative NPV, and IRR can be misleading with non-conventional cash flows or when comparing projects of different scales. Option D is wrong because payback period ignores the time value of money and cash flows after the payback point — it cannot rescue a project whose discounted cash flows are negative.