On a purely theoretical basis, NPV is the better approach to capital budgeting than IRR because NPV implicitly assumes that any intermediate cash inflows generated by an investment are reinvested at the firm's cost of capital.

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This statement is true. The NPV method takes into account the time value of money and assumes that any intermediate cash inflows are reinvested at the firm's cost of capital, whereas the IRR method assumes that intermediate cash flows are reinvested at the project's IRR. However, the IRR method can still be useful in certain situations, such as when comparing projects with different cash flow patterns or when there are constraints on capital budgeting decisions.

On a Purely Theoretical Basis, NPV Is the Better Approach