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

question 56

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:

Floodplain

An area of relatively smooth land adjacent to a stream channel that is intermittently flooded when the stream overflows its banks.

Sedimentation

The process by which material is deposited by wind, water, or ice, often resulting in layers of sediment that can eventually form sedimentary rocks.

Stream Channel

A stream channel is the physical confinement of a river or stream, composed of a bed and banks, which directs the flow of water.

Theory of Reasoned Action

A theory that predicts individuals' behavioral intentions and actions based on their attitudes toward the behavior and subjective norms.