A project costing $20,000 generates cash inflows of $9,000 annually for the first 3 years,followed by cash outflows of $1,000 annually for 2 years.At most,this project has ______ different IRR(s).
A) one
B) two
C) three
D) five

Question

Quizplus · Accepted Answer

The project has two different IRRs because of the sign changes in the cash flows. For the first 3 years, the cash inflows are positive, and for the next 2 years, the cash outflows are negative. This means that the project has a positive IRR for the first 3 years and a negative IRR for the next 2 years. Therefore, the project has two different IRRs.

A Project Costing $20,000 Generates Cash Inflows of $9,000 Annually