The Underlying Cause of Conflicts in Ranking for Projects by Internal

question 52

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 intermediate cash flows are reinvested at the cost of capital.
• D) the assumption made by the NPV method that intermediate cash flows are reinvested at the internal rate of return.

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Definitions:

Calendar Quarter

A period of three consecutive months within a calendar year used for financial and business reporting.

Compounded Monthly

A method of calculating interest where interest is added to the principal balance of an investment or loan once a month.

Future Value

The value of an investment or asset at a specified date in the future, taking into account factors such as interest rates or earnings.

Ordinary Annuity

A sequence of identical payments that are distributed at consistent intervals, where the initial payment is made at the conclusion of the period.