The traditional internal rate of return (IRR) assumes that cash flows are reinvested at the _____.

Question

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The traditional internal rate of return (IRR) assumes that cash flows are reinvested at the project's internal rate of return. This means that the IRR measures the rate of return that a project is expected to generate, assuming that the cash flows generated from the project are reinvested at a rate equal to the project's own internal rate of return. This can be problematic as it assumes that the cash flows are reinvested at a rate that is not always achievable in the market, which can lead to overestimation of a project's profitability.

The Traditional Internal Rate of Return (IRR) Assumes That Cash