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

question 28

True/False

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

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Definitions:

Sensitivity Analysis

A method used to determine how different values of an independent variable affect a particular dependent variable under a given set of assumptions.

"What If"

A speculative question or scenario analysis technique used in planning and decision-making to explore potential outcomes.

Buying Behavior

The decision-making process and actions of consumers that precede the purchase of goods or services.

Results-Oriented

An approach or mindset focused on achieving specific goals or outcomes.