The correct answer is: B. not be reinvested
Internal rate of return (IRR) is a measure of the profitability of an investment. It is the rate of return that makes the net present value of all cash flows from an investment equal to zero.
IRR is calculated by finding the discount rate that makes the present value of the cash inflows equal to the present value of the cash outflows.
The assumption that received cash flow from project must not be reinvested is made because IRR is a measure of the profitability of an investment, not the profitability of a project.
The profitability of a project is affected by the way in which the cash flows from the project are reinvested. However, IRR does not take into account the way in which the cash flows from the project are reinvested.
Therefore, the assumption that received cash flow from project must not be reinvested is made in order to calculate IRR accurately.
Here is a brief explanation of each option:
- Option A: received cash flow from project must be reinvested. This is not the assumption that is made in the calculation of IRR.
- Option B: received cash flow from project must not be reinvested. This is the assumption that is made in the calculation of IRR.
- Option C: received cash flow from project must be earned. This is not the assumption that is made in the calculation of IRR.
- Option D: received cash flow from project must not be earned. This is not the assumption that is made in the calculation of IRR.