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

Question

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The net present value method assumes that cash flows are reinvested at the discount rate, while the internal rate of return method assumes that cash flows are reinvested at the internal rate of return. Depending on the project and its cash flow patterns, the difference in reinvestment assumptions can affect the relative performance of the two methods.

It Is the Difference in the Reinvestment Assumptions That Can