Which of the following statements is correct?
A) The IRR rule must be reversed for projects with conventional and unconventional cash flows.
B) The IRR rule must be the same for projects with conventional and unconventional cash flows.
C) The IRR rule must be useless for projects with conventional and unconventional cash flows.
D) There is no difference between when the IRR rule is used with conventional and unconventional cash flows.

Question

Quizplus · Accepted Answer

The IRR rule works well with conventional cash flows where there is an initial cash outflow followed by cash inflows. However, for unconventional cash flows where there are multiple changes in the sign of cash flows, the IRR rule needs to be reversed, and the project's net present value should be used instead. This is because multiple IRR values can exist for unconventional cash flows, making it difficult to determine the appropriate discount rate.

Which of the Following Statements Is Correct