How many possible IRRs could you find for the following set of cash flows? $$\begin{array} { | r | l | l | l | l | l | }
\hline \text { Time } & 0 & 1 & 2 & 3 & 4 \
\hline \text { Cash Flow } & - \$ 201,000 & - \$ 37,350 & \$ 460,180 & \$ 217,020 & - \$ 5,000 \
\hline
\end{array}$$
A)1
B)2
C)3
D)4

Question

How many possible IRRs could you find for the following set of cash flows? $$\begin{array} { | r | l | l | l | l | l | } 
\hline \text { Time } & 0 & 1 & 2 & 3 & 4 \
\hline \text { Cash Flow } & - \$ 201,000 & - \$ 37,350 & \$ 460,180 & \$ 217,020 & - \$ 5,000 \
\hline
\end{array}$$
A)1
B)2
C)3
D)4

Quizplus · Accepted Answer

There could be two possible IRRs for the given cash flows. One of the IRRs could be between 10% to 15% and the other could be greater than 50%. This happens because of the change in sign of cash flows. This scenario is called multiple IRRs, and it is not uncommon. However, the odd number of cash flows, 5 in this case, eliminates the possibility of having three or four IRRs, making the answer choice C and D irrelevant. Therefore, B is the best choice.

How Many Possible IRRs Could You Find for the Following