Question

In 2008, a project requires an initial cost of -$250 and next year, in 2009, the...

In 2008, a project requires an initial cost of -$250 and next year, in 2009, the investor receives $570 and the year after that, in 2010, the cash flows from the investment is -$120. What is the total number of IRRs in this project?

1

0

2

3
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Answer #1

Answer : 2 IRR's

Year Cash flow
2008 ($250)
2009 $570
2010 ($120)

Multiple IRRs occur when a project has more than one internal rate of return. This situation arises where a project has non-normal cash flow

As the Project has different cash flow pattern, which has two sign changes. It has cash outflow followed by cash inflows followed by cash outflow.

In such case number of IRR's will be equal to number of sign Changes. Therefore, It has two IRRs

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