Why do NPV method and the IRR method sometimes give different rankings of mutually exclusive investment projects? * The NPV method does not assume reinvestment of cash flows while the IRR method assumes the cash flows will be reinvested at the internal rate of return. The NPV method assumes a reinvestment rate equal to the discount rate while the IRR method assumes a reinvestment rate equal to the internal rate of return. The IRR method does not assume reinvestment of the cash flows while the NPV assumes the reinvestment rate is equal to the discount rate. The NPV method assumes a reinvestment rate equal to the bank loan interest rate while the IRR method assumes a reinvestment rate equal to the discount rate.
Why do NPV method and the IRR method sometimes give different rankings of mutually exclusive investment projects? * The NPV method does not assume reinvestment of cash flows while the IRR method assumes the cash flows will be reinvested at the internal rate of return. The NPV method assumes a reinvestment rate equal to the discount rate while the IRR method assumes a reinvestment rate equal to the internal rate of return. The IRR method does not assume reinvestment of the cash flows while the NPV assumes the reinvestment rate is equal to the discount rate. The NPV method assumes a reinvestment rate equal to the bank loan interest rate while the IRR method assumes a reinvestment rate equal to the discount rate.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Why do NPV method and the IRR method sometimes give different rankings of mutually
exclusive investment projects? *
The NPV method does not assume reinvestment of cash flows while the IRR method assumes the cash flows
will be reinvested at the internal rate of retum.
The NPV method assumes a reinvestment rate equal to the discount rate while the IRR method assumes a
reinvestment rate equal to the internal rate of return.
The IRR method does not assume reinvestment of the cash flows while the NPV assumes the reinvestment
rate is equal to the discount rate.
The NPV method assumes a reinvestment rate equal to the bank loan interest rate while the IRR method
assumes a reinvestment rate equal to the discount rate.
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