Q&A Question 4.4

Discussion in 'CT2' started by babyimissyou, Mar 14, 2014.

  1. babyimissyou

    babyimissyou Member

    The net present value method of capital budgeting assumes that cashflows are reinvested at:

    A. the firm's cost of capital
    B. the firm's dividend yield
    C. no rate - they are not reinvested
    D. the rate of return of the project

    Acted notes just stated C is the answer. Can anyone explain why C but not D?
     
  2. Simon James

    Simon James ActEd Tutor Staff Member

    The NPV method values cashflows as they occur. It does not assume that they are reinvested at all.
     

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