Which of the following statements best describes normal cash flows?
A) If a project has "normal" cash flows, then its IRR must be positive.
B) If a project has "normal" cash flows, then its MIRR must be positive.
C) If a project has "normal" cash flows, then it will have exactly two real IRRs.
D) If a project has "normal" cash flows, then it can have only one real IRR, whereas a project with "non-normal" cash flows might have more than one real IRR.

Question

Quizplus · Accepted Answer

"Normal" cash flows refer to cash flows where the project has an initial cash outflow followed by a series of positive cash inflows. In this case, the project will have only one real IRR. A project with "non-normal" cash flows, where there are multiple changes in signs of cash flows, may have more than one real IRR. Therefore, option D is the correct answer. Option A is incorrect because while "normal" cash flows are likely to have a positive IRR, it's not always guaranteed. Option B is incorrect because normal cash flows may not necessarily have a positive MIRR. Option C is incorrect because normal cash flows result in only one real IRR, not exactly two.

Which of the Following Statements Best Describes Normal Cash Flows