Blue Bird Café is considering a project with an initial cost of $46,800,and cash flows of $8,500,$25,000,$19,000,and −$4,500 for Years 1 to 4,respectively.How many internal rates of return do you expect this project to have?
A)0
B)1
C)4
D)3
E)2

Question

Quizplus · Accepted Answer

Since there is a negative cash flow in the last year, it is possible for there to be multiple internal rates of return (IRRs). In this case, there are two sign changes in the cash flows, which means there could be up to two IRRs. However, the Excel function for calculating IRR assumes only one IRR, so we need to use the Goal Seek function to find the second IRR. Therefore, the answer is E, two IRRs.

Blue Bird Café Is Considering a Project with an Initial