Question: The internal rate of return method implies that intermediate cash flows are reinvested at the internal rate of return. Under what circumstances is this assumption

The method implies that intermediate cash flows are reinvested at the Under what circumstances is this assumption likely to lead to a seriously biased measure of the economic return from the project?

Step by Step Solution

★★★★★

3.30 Rating (174 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Problems may result if the reinvestment rate available to the company differs sharply from ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

635-B-F-F-M (6645).docx

120 KBs Word File

Students Have Also Explored These Related Finance Questions!

1. Describe the capital budgeting process in your own words. 2. Define capital investment. List at least three examples of capital investments other than the examples provided in the chapter. 3. As...

Some people claim, The internal rate of return is more difficult to compute than the net present value of a project. The internal rate of return method can never give a better answer than the net...

The internal rate of return method is used by Carlisle Construction Co. in analyzing a capital expenditure proposal that involves an investment of $49,890 and annual net cash flows of $15,000 for...

We are asked that: (a) Although it is conceptually unsound, the payback period is very popular in business asa criterion for assigning priorities to investment projects. Why is it unsound, and why is...

The internal rate of return method implies that intermediate cash flows are reinvested at the internal rate of return. Under what circumstances is this assumption likely to lead to a seriously biased...

The internal rate of return method assumes that intermediate cash flows are immediately reinvested at: A. The company's discount rate. B. The actual rate of return earned by the project. ...

9. The internal rate of return method assumes that the cash flows over the life of the project are reinvested at a)the risk-free rate b)the firm's cost of capital c)the computed internal rate of...

will thumbs up! Question 18 5 pts Which of the following statements is true? In calculating the profitability index, the initial investment in the project should be reduced by any proceeds from the...

Which of the following statements is true? A. The internal rate of return method assumes that the cash flows generated by a project are reinvested at a rate of return that equals the company's cost...

5 pts Question 12 Which of the following statements is true? The internal rate of return method assumes that the cash flows generated by a project are reinvested at a rate of return that equals the...

Under what circumstances can the normal distribution be used in break-even analysis? What does it usually represent?

Perform a graphical analysis of the relationship between Failure, Appraisal and Prevention Costs, and the Quality of Production; and describe in your own words the interpretation of this graph in...

14. LO.3 Use the following chart to indicate whether each of the indicated items is included in distributable net income (DNI) Fiduciary Entity Item Included in DNI? Taxable interest income...

Read this: As you know by having watched The Donald as he organized his business teams for The Apprentice, human resource management plays an important role in what Donald Trump and the participants...

Computer World Inc. paid out $22.5 million in total common dividends and reported $278.9 million of retained earnings at year-end. The prior years retained earnings were $212.3 million. What was the...

W.C. Cycling had $55,000 in cash at year-end 2007 and $25,000 in cash at year-end 2008. Cash flow from long-term investing activities totaled $250,000, and cash flow from financing activities totaled...

The real risk - free rate ( r * ) is 2 . 8 % and is expected to remain constant. Inflation is expected to be 5 % per year for each of the next five years and 4 % thereafter. The maturity risk premium...

Generally, the marketable securities account includes securities that are traded in the money markets. Group of answer choices True False...

Gold Star Rice, Limited, of Thailand exports Thai rice throughout Asia. The company grows three varieties of riceWhite, Fragrant, and Loonzain. Budgeted sales by product and in total for the coming...