Unlike the net present value criteria, the internal rate of return approach assumes a reinvestment rate equal to ________.
A) the relevant cost of capital
B) the project's internal rate of return
C) the project's opportunity cost
D) the market's interest rate

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) approach assumes that cash flows from a project are reinvested at the project's internal rate of return. Therefore, the reinvestment rate is not equal to the cost of capital or the market's interest rate. It also does not assume a specific opportunity cost rate as it is already reflected in the cash flows used in calculating IRR. Therefore, the correct answer is B - the project's internal rate of return.

Unlike the Net Present Value Criteria, the Internal Rate of Return