Project Black Swan requires an initial investment of $115,000.It has positive cash flows of $140,000 for each of the next two years.Because of major demolition and environmental clean-up costs, cash flow for the third and final years of the project is $170,000.
A)All possible IRRs for this project are negative.
B)It is not possible to calculate an IRR for this project.
C)The project is unacceptable at any required rate of return.
D)This project might have more than one IRR.

Question

Quizplus · Accepted Answer

Since the project has both positive and negative cash flows, it is possible for it to have more than one IRR. In this case, the project has positive cash flows for the first two years, followed by a larger positive cash flow in the final year, which could result in multiple potential rates of return. Therefore, it is possible that this project might have more than one IRR.

Project Black Swan Requires an Initial Investment of $115,000