Question

the underlying assumption in irr method is that all the intermittent cash flows are reinvested at
a)cut off rate
b)required rate of return
c)cost of capital
d)irr

Answer 1

IRR assumes reinvestment of intermittent cash flows in the project with required rate of return. IRR creates make equally rate of return annually in which reinvested to calculate the IRR. The internal rate of return ( IRR)is the knowledge of discount rate at the time of evaluation of the project. IRR is calculated with trial and error . calculate NPV of the project with ant discount if the NPV is positive try higher discount rate.

Answer 2

IRR refers to the Internal rate of return of investments where you can calculate the earnings for the investment made by you.

In simple words it can also be called the investment return rate.

Hence it is important that we are very clear with the functions of IRR before start considering the investments based on this assumption.

However one important assumption is that in the IRR method the intermittent cash flow is also invested under the same.