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:

SST

SST stands for Sum of Squares Total, a term used in statistics to measure the total variability within a dataset.

MSE

Mean Squared Error, a measure of the average of the squares of the errors—that is, the average squared difference between the estimated values and the actual value.

Least Squares Estimate

A statistical technique that determines the line of best fit for a model by minimizing the sum of the squares of the vertical differences (residuals) between the observed values and the values predicted by the model.

Intercept

In the context of mathematical graphs and equations, it refers to the point where a line or curve crosses an axis.