It is the difference in the discount rate assumptions that can be significant in determining when to use the present value or internal rate of return methods.

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The discount rate assumption is a crucial factor in determining whether to use PV or IRR method. The PV method requires us to assume a single discount rate that will be used to discount all future cash flows to their present value. In contrast, the IRR method calculates the discount rate that makes the NPV of the project equal to zero. Therefore, a significant difference in the discount rate assumption can impact the outcome of these methods differently.

It Is the Difference in the Discount Rate Assumptions That