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Reinvestment under IRR

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When two mutually exclusive projects are considered, the NPV calculations and the IRR calculations may, under certain circumstances, give conflicting recommendations as to which project to accept. The reason for this result is that in the NPV calculation, cash inflows are assumed to be reinvested at the cost of capital, while in the IRR solution, reinvestment takes place at

the hurdle rate.
the accounting rate of return.
the prime rate.
the project's internal rate of return.

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Solution Summary

The solution explains what is the reinvestment rate assumption in IRR.