*There is one possible flaw in the assumptions for these present value and internal rate of return computations. Just as we assumed that the interest from the bank would be reinvested and itself earn interest (interest-on-interest or compounding), these concepts assume that the company will reinvest the interest (the internal rate of return) from the equipment cash flow at the same rate of interest. If it does not, the calculations will be somewhat in error.
Get The McGraw-Hill 36-Hour Course: Finance for Non-Financial Managers 3/E, 3rd Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
