The net present value method of capital budgeting assumes that cash flows are reinvested at what rate?
A) The internal rate of return on the project.
B) The rate of return on the company's debt.
C) The discount rate used in the analysis.
D) A zero rate of return.

Question

Quizplus · Accepted Answer

The net present value (NPV) method of capital budgeting assumes that cash flows are reinvested at the discount rate used in the analysis. This means that the NPV calculation assumes that any future cash flows generated by the project will be reinvested at the same rate as the discount rate used to calculate the present value of those cash flows. This assumption is necessary in order to accurately calculate the present value of the project's expected future cash flows.

The Net Present Value Method of Capital Budgeting Assumes That