Question

TVM-There are numerous approaches but NPV has the final say over IRR. I prefer modified IRR over IRR

A sinking fund has both benefits and costs - what are they?

Answer 1

1.

Net present value is one of the most used method fro evaluation of capitalbudgeting project because of its reinvestment assumtion. Net present value consider the reinvestment of cash flow at discount rate while other method IRR consider reinvestment at IRR rate. IRR method it is assume that all cash flow is reinvested at IRR which is not always true.MIRR considers reinvestment rate and cost of capital to evaluate the project so provide better result than IRR method.

So, prefer modified IRR over IRR.

Statement is true.

2.

Sinking fund are one of the cost that once incure it will never return . it might be provide benefit but it is not necessary but even it not provide benefit then the fund will never providereturn.

Example of sinking fund is research done of pharma company. once the cost is icured in research it will nevel return.