Abstract This paper discusses an approach to teaching capital budgeting models that is more general, that allows for more realistic assumptions about reinvestment rates than conventionally made, and that allows for consistent reinvestment rate assumptions across the net present value, internal rate of return, and terminal value models. Using these assumptions it is shown that all three models produce consistent ranking results among competing projects. To facilitate use of the recommended approach, "patches" are provided to incorporate the approach into two widely-used software packages.
Ronald V. Hartley (Sat,) studied this question.