What is the net present value's assumption about how cash flows are reinvested?
A) They are reinvested at the IRR.
B) They are reinvested at the APR.
C) They are reinvested at the firm's discount rate.
D) They are reinvested only at the end of the project.

Question

Quizplus · Accepted Answer

The net present value (NPV) assumes that the cash flows generated by a project are reinvested at the firm's discount rate. This assumes that the firm can reinvest the cash flows generated by the project at the same rate of return as the discount rate used to calculate the NPV. This assumption ensures that NPV accurately reflects the value of the investment by accounting for the time value of money and the opportunity cost of the reinvested cash flows.

What Is the Net Present Value's Assumption About How Cash