The assumption that the cash flows from an investment project are reinvested at the company's discount rate applies to:
A) both the internal rate of return and the net present value methods.
B) only the internal rate of return method.
C) only the net present value method.
D) neither the internal rate of return nor net present value methods.

Question

Quizplus · Accepted Answer

The assumption that cash flows from an investment project are reinvested at the company's discount rate applies only to the net present value method. The internal rate of return method assumes that cash flows are reinvested at the internal rate of return, which may not be equal to the company's discount rate.

The Assumption That the Cash Flows from an Investment Project