The Net Present Value (or NPV) criteria for capital budgeting decisions assumes

Question

The Net Present Value (or NPV) criteria for capital budgeting decisions assumes that expected future cash flows are reinvested at ________, and the Internal Rate of Return (or IRR) criteria assumes that expected future cash flows are reinvested at ________. Select one: a. the firm's discount rate; the internal rate of return b. the internal rate of return; the firm's discount rate c. the internal rate of return; the internal rate of return d. Neither criteria assumes reinvestment of future cash flows.

Explanation / Answer

Ans) A. the firms's discount rate , the internal rate of return.

Net present value is basically the difference of discounted cash outflows and discounted cash inflows

By NPV we can decide whether to take that project or reject it. NPV assums that discount rate is used to reinvest expected future cash flows

Internal rate of return is basically the discount rate where net present value is zero. And IRR assums internal rate of return to reinvest expected future cash flows   

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.