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

question 2

Essay

Both net present value (NPV) and the internal rate of return (IRR) have a reinvestment assumption.
Required:
A. State the assumption for each method.
B. One of the advantages of the NPV method is that users can adjust for risk considerations. Explain how this is done.

---

Definitions:

Real GDP

An adjustment in a country's economic production figures to account for variations in price levels, either through inflation or deflation, to accurately represent the genuine worth of its goods and services.

Nominal GDP

The gross domestic product measured in current prices, without adjusting for inflation.

Base Year

A specific year against which economic growth or other economic indexes are measured, serving as a point of comparison for future or past data.

Hypothetical Country

A theoretical or imaginary nation used for the sake of argument or analysis in economic models or discussions.