How should Net Present Value be interpreted when interest rates are negative?

One of the big subjects in Europe these days are negative interest rates, where depositors are actually charged to keep money in their account. I encountered an interesting question yesterday, if we base our IRR on the banks interest rates, will this affect the use of NPV when the r is less than zero?

Pardon my napkin-drawing.

I have often used the following as a control-question when considering investments in new technology: “Will this investment benefit us more than puting money in the bank?” If not, then reevaluate. With negative interest rates as a foreshadowing of a potential future I am left with more questions than answers.

One thing is for sure, I was not prepared for the practical implications of negative interest rates in any of my textbooks on valuation and corporate finance in school other than with a negative discount rate the NPV goes way up, WACC goes significantly down! This makes “every” investment look great i theory, and how this should be interpreted i reality should be interesting to see. Or perhaps I am just bored on the plane and creating problems based on my limited knowledge of finance.

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