Which of the statements below is TRUE?
A)One problem with IRR as a decision rule is that if the cash flow is not standard,there is a possibility of multiple IRRs for a single project.
B)When we talk about standard cash flow for a project,we assume an initial cash outflow at the beginning of the project and negative cash flows in the future.
C)When we apply IRR to standard cash flow,we have the potential for more than one IRR solution.
D)For every period that the cash flow has a change of sign (negative to positive or positive to negative),the NPV profile could cross the y-axis,generating a MIRR.

Question

Quizplus · Accepted Answer

This is true. When cash flows are not standard, there can be multiple IRRs for the same project. Standard cash flows assume an initial cash outflow followed by negative cash flows in the future, which avoids the possibility of multiple IRRs. Option B and C are incorrect because standard cash flows assume an initial investment and negative cash flows in the future, and there is a possibility of only one IRR solution. Option D is incorrect because the NPV profile may not necessarily generate a MIRR for each change in sign in the cash flow.

Which of the Statements Below Is TRUE