The NPV method's assumption that cash inflows are reinvested at the cost of capital is more reasonable than the IRR's assumption that cash flows are reinvested at the IRR.This is an important reason that the NPV method is generally preferred over the IRR method.

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The assumption made by the NPV method that cash inflows are reinvested at the cost of capital is more realistic because it reflects the actual opportunity cost of investing. On the other hand, the IRR's assumption that cash flows are reinvested at the IRR may not necessarily capture the true cost of reinvestment. Therefore, the NPV method is generally preferred over the IRR method.

The NPV Method's Assumption That Cash Inflows Are Reinvested at the Cost