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:

Linear Island Chain

A series of islands aligned in a straight line, often created by the movement of a tectonic plate over a stationary hotspot in the Earth's mantle.

Seamount

A submarine mountain, in some cases flat-topped, that rises above the seafloor.

Pacific Ocean

The largest and deepest of the world's ocean basins, extending from the Arctic in the north to the Antarctic in the south.

Tectonics

The study of the structure and motion of the Earth's crust and its large-scale processes and features.