The NPV Method's Assumption That Cash Inflows Are Reinvested at the Cost

question 101

True/False

The NPV method's assumption that cash inflows are reinvested at the cost of capital is generally more reasonable than the IRR's assumption that cash flows are reinvested at the IRR.This is an important reason why the NPV method is generally preferred over the IRR method.

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Definitions:

Assigned Fund Balance

Part of a governmental entity's fund balance that is earmarked for a specific use but can be changed by the entity's management.

Private Purpose Trust Fund

A type of trust fund in the public sector meant to benefit specific individuals, private organizations, or other governments.

Permanent Fund

A fund established to generate income for an organization without spending the principal amount, often used by nonprofit entities and governments.

Disabled Children

Individuals under the age of 18 who have physical or mental impairments that substantially limit one or more major life activities.