Detailed Answer
Answer (D) is correct. The NPV method assumes that periodic cash inflows earned over the life of an investment are reinvested at the company’s cost of capital i.e. the discount rate used in the analysis). This is contrary to the assumption under the internal rate of return method, which assumes that cash inflows are reinvested at the internal rate of return. As a result of this difference, the two methods will occasionally give different rankings of investment alternatives.
