The Underlying Cause of Conflicts in Ranking for Projects by Internal

question 53

Multiple Choice

The underlying cause of conflicts in ranking for projects by internal rate of return and net present value methods is

• A) the reinvestment rate assumption regarding intermediate cash flows.
• B) that neither method explicitly considers the time value of money.
• C) the assumption made by the NPV method that intermediate cash flows are reinvested at the internal rate of return.
• D) the assumption made by the IRR method that intermediate cash flows are reinvested at the cost of capital.

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Definitions:

Working Capital

The difference between a company's current assets and current liabilities, indicating its ability to meet short-term obligations.

Discount Rate

A discount rate utilized in discounted cash flow assessment for establishing the present worth of expected cash flows.

Annual Operating Cash Inflows

Annual operating cash inflows are the monetary returns received from a company's day-to-day business operations over the course of a year.

Salvage Value

The anticipated market value of an asset at the conclusion of its lifespan.