Although differences in the magnitude and timing of cash flows explain conflicting rankings under the NPV and IRR techniques, the underlying cause is the implicit assumption concerning the reinvestment of intermediate cash inflows.

Question

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The statement is true. Differences in the assumed reinvestment rate of intermediate cash flows can result in conflicting rankings under the NPV and IRR techniques. NPV assumes reinvestment at the cost of capital, while IRR assumes reinvestment at the project's internal rate of return. This can result in different rankings if the timing and magnitude of cash flows differ.

Although Differences in the Magnitude and Timing of Cash Flows