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The IRR is the rate of interest at which the NPV is equal to zero.
For every change of sign (from positive to negative or vice versa) in the cash flows, there is potentially (but not always) one more IRR. Most investments are just a cash outflow followed by cash inflows, so one change of sign and therefore one IRR.
If you had an outlow followed by some inflows followed by more outflows (so 2 changes of sign) then there could possibly be two IRR’s.You cannot be asked to explain this until Paper FM (and even there it is rare to be mentioned) and you can never be asked to calculate more than one IRR in any of the ACCA’s exams.
The most you need to know for Paper MA is simply that it is possible.
If you want to know the reasons in more detail (which again is not relevant for Paper MA) then you need to watch this Paper FM lecture:
https://opentuition.com/acca/fm/discounted-cash-flow-internal-rate-return-acca-financial-management-fm/John Moffat wrote:If you want to know the reasons in more detail (which again is not relevant for Paper MA) then you need to watch this Paper FM lecture:
https://opentuition.com/acca/fm/discounted-cash-flow-internal-rate-return-acca-financial-management-fm/ slope gameThank you for the example, it answered my question.
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