NPV method is based on the assumption that projects' cash flows are reinvested at the project's risk-adjusted cost of capital.

Question

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The net present value (NPV) method assumes that a project's cash flows are reinvested at the project's risk-adjusted cost of capital in order to determine its present value. This assumption provides a more accurate measure of a project's profitability as it considers the time value of money and the opportunity cost of investing in other projects with similar risk profiles.

NPV Method Is Based on the Assumption That Projects' Cash