Which of the following statements is correct?
A) The NPV method assumes that cash flows will be reinvested at the required rate of return while the IRR method assumes reinvestment at the IRR.
B) The NPV method assumes that cash flows will be reinvested at the risk-free rate while the IRR method assumes reinvestment at the IRR.
C) The NPV method assumes that cash flows will be reinvested at the required rate of return while the IRR method assumes reinvestment at the risk-free rate.
D) The NPV method does not consider the inflation premium.
E) The IRR method does not consider all relevant cash flows,and particularly cash flows beyond the payback period.

Question

Quizplus · Accepted Answer

The NPV method assumes cash flows are reinvested at the project's required rate of return, while the IRR method assumes reinvestment at the IRR itself. This difference in reinvestment assumptions can lead to different project evaluations under these two methods.

Which of the Following Statements Is Correct