The Underlying Cause of Conflicts in Ranking for Projects by Internal

question 12

Multiple Choice

The underlying cause of conflicts in ranking for projects by internal rate of return and net present value methods is ________.

• A) the reinvestment rate assumption regarding intermediate cash flows
• B) that neither method explicitly considers the time value of money
• C) the assumption made by the IRR method that cash inflows are spread equally throughout the timeline
• D) that NPV approach favors small projects with high returns

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Definitions:

Forecasting Error

The difference between actual outcomes and previously predicted values, important in assessing the accuracy of projections.

Discounted Payback

Represents the period required for an investment to break even in terms of present value, taking into account the discount factor.

Cash Inflows

The total amount of money being transferred into a business, project, or financial product from various sources.

Discount Rate

The interest rate applied for computing the present value of future cash flows in DCF scrutiny.