Which one of the following methods assumes (inherently, according to some) that all interim cash inflows generated by an investment earn a return equal to the internal rate of return (IRR) of the investment?
A) Modified internal rate of return (MIRR).
B) Payback.
C) Net present value (NPV).
D) Present value index (PI).
E) Internal rate of return method (IRR).

Question

Quizplus · Accepted Answer

The Internal Rate of Return (IRR) method inherently assumes that all interim cash inflows are reinvested at the project's own IRR, which is a key criticism of this method because it might not always be a realistic assumption.

Which One of the Following Methods Assumes (Inherently, According to Some)