The underlying cause of conflicts in ranking for projects by internal rate of return and net present value methods is
A) the reinvestment rate assumption regarding intermediate cash flows.
B) that neither method explicitly considers the time value of money.
C) the assumption made by the NPV method that intermediate cash flows are reinvested at the internal rate of return.
D) the assumption made by the IRR method that intermediate cash flows are reinvested at the cost of capital.

Question

Quizplus · Accepted Answer

The conflict arises because the IRR method assumes that intermediate cash flows are reinvested at the IRR itself, while the NPV method assumes reinvestment at the cost of capital, leading to different project rankings.

The Underlying Cause of Conflicts in Ranking for Projects by Internal