Which of the following statements is correct?
A)The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the IRR.
B)The NPV method assumes that cash flows will be reinvested at the risk-free rate, while the IRR method assumes reinvestment at the IRR.
C)The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the risk-free rate.
D)The NPV method does not consider all relevant cash flows, particularly cash flows beyond the payback period.

Question

Quizplus · Accepted Answer

The NPV method assumes that cash flows will be reinvested at the weighted average cost of capital (WACC), while the IRR method assumes reinvestment at the internal rate of return (IRR). This assumption is a key difference between the two methods and can lead to different project evaluations.

Which of the Following Statements Is Correct