- This topic has 4 replies, 3 voices, and was last updated 8 years ago by
.
- Posts
Hi, Could you please help with following question:
Which of the following statements are true about IRRs?
(i) IRR considers the time value of money
(ii) if the IRR exceeds the companies cost of capital the NPV at the company’s cost of capital should be positive
(iii) it is possible for one investment to have 2 IRRs
A (i) only
B (i) and (ii) only
C (ii) and (iii) only
D (i), (ii) and (iii)I believe that correct answer is B, however as per Kaplan rk the correct answer is D. If so, please advice how it is possible to have 2 IRRs for one investment.
Thanks1) it’s a rate at which NPV is zero.
2) true
3) if cash flows change (inflow and outflow) sign, it can have multiple irrRandomname – please do not answer in this forum. It is the Ask the Tutor Forum, and you are not the tutor. (But please do help people in the other F2 forum 🙂 )
gbay: For every change of sign in the cash flows, there is potentially 1 IRR.
Usually, there is an outflow (negative flow) followed by inflows (positive flows) and so there is only one change of sign and therefore only 1 IRR.However, if there is an outflow, followed by inflows, followed by outflows, then there are two changes of sign and therefore there could be two changes of sign.
- The topic ‘IRR’ is closed to new replies.