Final answer:
The implicit reinvestment rate assumption in the IRR approach is more appropriate than the reinvestment rate assumption built into the MIRR approach.
Step-by-step explanation:
The statement is true. The implicit reinvestment rate assumption in the IRR (Internal Rate of Return) approach assumes that the cash flows generated by the project are reinvested at the project's IRR. On the other hand, the MIRR (Modified Internal Rate of Return) approach explicitly assumes that the cash flows are reinvested at the cost of capital.
For example, let's say we have two projects: A and B. Project A has a higher IRR compared to Project B, but a lower MIRR. This indicates that the IRR approach assumes a higher reinvestment rate, which may not be realistic in practice. The MIRR approach, by using the cost of capital as the reinvestment rate, provides a more reasonable assumption.