Which of the following statements is trueregarding capital budgeting methods?
A)The Fisher rate can never exceed a company's cost of capital.
B)The internal rate of return measure used for capital project evaluation has more conservative assumptions than the net present value method,especially for projects that generate a positive net present value.
C)The net present value method of project evaluation will always provide the same ranking of projects as the profitability index method.
D)The net present value method assumes that all cash inflows can be reinvested at the project's cost of capital.

Question

Quizplus · Accepted Answer

The net present value method assumes that all cash inflows can be reinvested at the project's cost of capital. This assumption is not made in other methods such as internal rate of return or profitability index. The Fisher rate can exceed a company's cost of capital, and the ranking of projects may differ between the net present value and profitability index methods.

Which of the Following Statements Is Trueregarding Capital Budgeting Methods