Question

which of the following statements is false? multiple choice question. the internal rate of return method assumes cash flows are reinvested. the internal rate of return method makes a questionable assumption. the net present value method assumes that cash flows are not reinvested. the net present value method is simpler than the internal rate of return method.

Answer 1

The false statement is that the net present value method assumes that cash flows are not reinvested, as NPV actually assumes reinvestment at the firm's cost of capital.

Step-by-step explanation:

The statement that is false among the choices given is: "The net present value method assumes that cash flows are not reinvested." In reality, the Net Present Value (NPV) method assumes that cash flows are reinvested at the firm's cost of capital. The Internal Rate of Return (IRR) method does indeed make a questionable assumption; it assumes that cash flows can be reinvested at the project’s own IRR, which may not always be possible. Furthermore, the NPV method is not necessarily simpler than the IRR method; both have their complexities and are used in different investment appraisal scenarios depending on the context and preference of the analyst.

Answer 2

The false statement among the given options is that the net present value method assumes that cash flows are not reinvested.

Step-by-step explanation:

The false statement among the options is:

The net present value method assumes that cash flows are not reinvested.

The net present value (NPV) method assumes that the cash flows generated by an investment project are reinvested at the project's required rate of return. On the other hand, the internal rate of return (IRR) method assumes that the cash flows are reinvested at the IRR itself.

In summary, the False statement in the given multiple-choice question is that the net present value method assumes that cash flows are not reinvested.