When NPV and IRR rank two mutually exclusive projects differently, NPV is usually preferred because:

Correct answer: A) NPV assumes intermediate cash flows are reinvested at the cost of capital, which is more realistic than IRR's assumption of reinvestment at the IRR itself

Explanation

Both methods are discounted cash flow techniques. Rankings can conflict because of differences in project size or timing of cash flows. NPV implicitly assumes reinvestment at the cost of capital, while IRR assumes reinvestment at the project's own IRR, which may be unrealistically high. NPV also measures the absolute addition to shareholder wealth. Multiple IRRs arise only with non-conventional cash flows.