True or false

For capital budgeting and cost of capital purposes, the firm should assume that each dollar of capital is obtained in accordance with its target capital structure, which for many firms means partly as debt, partly as preferred stock, and partly common equity.

9 - NPV and IRR methods are based on identical assumptions regarding reinvestment rate of future cash flows.

Question

Business

Moses Russell

4 February, 09:28

True or false

For capital budgeting and cost of capital purposes, the firm should assume that each dollar of capital is obtained in accordance with its target capital structure, which for many firms means partly as debt, partly as preferred stock, and partly common equity.

9 - NPV and IRR methods are based on identical assumptions regarding reinvestment rate of future cash flows.

+1

Answers (1)

Know the Answer?

Rich · Answer 1

True

False

Explanation:

The answer for the above question is true because the for cost of capital purposes and capital budgeting, the firm need to assume that each and every dollar of capital is obtained in the accordance with it's target capital structure.

The next question is false because the NPV is not based on reinvestment rate assumption whereas IRR is based on this assumption.