What capital investment decision-making model assumes that each cash inflow is reinvested at the project's own rate of return?

Question

Quizplus · Accepted Answer

This model is known as the internal rate of return (IRR) method. It assumes that each cash inflow is reinvested at the project's own rate of return, making it a more realistic model as it considers the time value of money and assumes that the project can generate returns comparable to its own rate of return. The other models (net present value, accounting rate of return, and payback period) have their own limitations and may not consider all relevant factors in making investment decisions.

What Capital Investment Decision-Making Model Assumes That Each Cash Inflow