5 Questions
Which approach tends to be more conservative?
NPV
What is the primary difference between IRR and NPV assumptions?
The reinvestment rate of cash inflows
Why do companies prefer larger cash inflows in the early years?
Due to the downstream uncertainty
When do early year cash inflows tend to have a lower cost of capital?
Compared to later year cash inflows
What is the consequence of differences in the magnitude and timing of cash inflows?
Projects are ranked differently
Understand the differences between NPV and IRR methods in investment decision making. Learn how the assumptions of reinvestment rates affect the ranking of projects. Compare the conservative approach of NPV with the IRR method.
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