In calculation of internal rate of return, an assumption states that received cash flow from the project must __________?
Correct answer: A. be reinvested
- A. be reinvested
- B. not be reinvested
- C. be earned
- D. not be earned
Explanation
The traditional IRR method assumes that interim cash inflows can be reinvested at the project’s IRR. This reinvestment assumption is one reason the modified IRR is sometimes preferred.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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