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A company is considering a project which has initial outflow followed by several years of cash inflows, with a cash outflow in the final year. How many IRR could there be for this project.
a) either zero or two
b) either one or two
c) Zero, one or two
d) only twoCorrect ans is C, but can you please me why
As I explain in the lectures, there is potentially one IRR for every change of sign in the cash flows. So since the cash flows change sign twice – negative, then positive, then negative – there are potentially 2 IRR’s.
However ‘potentially’ does not mean that there have to be 2 – there can be a maximum of 2. So 0, 1 or 2.
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