Which of the following statements is most correct? A. The NPV method of capital

Question

Which of the following statements is most correct? A. The NPV method of capital budgeting assumes that cash flows will be reinvested at the cost of capital while the IRR method assumes the 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 cost of capital while the IRR method assumes reinvestment at the risk free rate. D. The IRR method does not consider all relevant cash flows, and particularly cash flows beyond the payback period.

Explanation / Answer

a. The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the IRR. a is correct and remaining are false

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