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Why is it not always possible for the cash borrowed (released) from a project to be...

Why is it not always possible for the cash borrowed (released) from a project to be reinvested to yield a rate of return equal to that received from the project?

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Answer #1

Whenever there are cash-flows from a project, the money cannot be assumed to be reinvested to yield a rate of return equal to that received from the project. This is because undertaking a project has many constraints. If a firm has taken up a project, this doesn't mean that an infinite number of such projects with the same rate of return is available. Also, there may be a possibility that the project required a certain amount of capital investment which most of the time is greater than any intermediate cash-flows gained through any projects. In short, it is difficult to generate the same rate of return for any amount of money as investment options are limited by capital and opportunity.

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