Which of the following statements is CORRECT?
A) If a project has "normal" cash flows, then its MIRR must be positive.
B) If a project has "normal" cash flows, then it will have exactly two real IRRs.
C) The definition of "normal" cash flows is that the cash flow stream has one or more negative cash flows followed by a stream of positive cash flows and then one negative cash flow at the end of the project's life.
D) If a project has "normal" cash flows, then it can have only one real IRR, whereas a project with "nonnormal" cash flows might have more than one real IRR.
E) If a project has "normal" cash flows, then its IRR must be positive.

Question

Quizplus · Accepted Answer

A project with "normal" cash flows has one or more negative cash flows at the beginning followed by a series of positive cash flows and then one negative cash flow at the end. Such projects can have only one real IRR. Projects with "nonnormal" cash flows, on the other hand, may have more than one real IRR. The MIRR (Modified Internal Rate of Return) can be positive, negative or zero depending on the cash flows and the required rate of return used to compute it.

Which of the Following Statements Is CORRECT