Both Net Present Value (NPV)and the Internal Rate of Return

question 11

Essay

Both net present value (NPV)and the internal rate of return (IRR)have a reinvestment assumption.
Required:
A.In the NPV method,cash flows are assumed to be reinvested at the hurdle rate.With the IRR,cash flows are assumed to be reinvested at the same rate as the project's return.
A.State the assumption for each method.
B.In the NPV method,a higher hurdle rate can be used,either for the entire analysis or for the estimated cash inflows (savings)that occur late in the project's life.
B.One of the advantages of the NPV method is that users can adjust for risk considerations.Explain how this is done.

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Definitions:

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