Question

Which of the following cash flow patterns would produce multiple internal rates of return (IRRs) for a project? a. A project requires a large cash payment today, it generates cash inflows for the next four years, a large cash payment must be paid in Year 5, and then cash inflows are generated for the remainder of the project's life. b. A project with a five-year life requires no cash outlay today, it generates cash inflows for the next three years, and then requires cash payments for the last two years. c. A project requires cash payments for the first three years of its life, followed by cash inflows for the remainder of its life. d. A project requires cash payments for its entire life. e. A project requires a large cash payment today, but it generates cash inflows every year after it is purchased

Answer 1

Correct option
a. A project requires a large cash payment today, it generates cash inflows for the next four years, a large cash payment must be paid in Year 5, and then cash inflows are generated for the remainder of the project's life
Multiple IRR occurs when we have atleast one future cash flow is followed by one cash outflow
In this case
Year
0	Cash outflow
1	Cash inflow
2	Cash inflow
3	Cash inflow
4	Cash inflow
5	Cash outflow
Hence multiple IRR will be generated
When there is regular 2 cash outflow than multiple IRR is not generated
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