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A company is considering a project which has an initial outflow followed by several years of cash inflows with a cash outflow in the final year.
How many internal rate of return could there be for this project
A. Either zero or two
B. Either one or two
C. Zero, one or two
D. Only twoMy tutor told me the answer is C but I am thinking that an unconventional cash flow where there is an outflow followed by an inflow followed by an outflow, the sign would have changed and there will only be two IRRs.
Why is it that there is soo many IRRs?
For every change of sign, there is potentially one more IRR. However, there does not have to be one more IRR – for example, if the outflow at the end is very small then there will not be an extra IRR.
So since there are two changes of sign, then can be up to two IRR’s (but there might only be 1, or there might be no IRR at all).
So the answer is indeed C.
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