Certain mathematical properties may cause a project with a nonconventional cash flow pattern to have zero or more than one IRR; this problem does not occur with the NPV approach.

Question

Quizplus · Accepted Answer

This statement is true. The IRR calculation involves finding the discount rate that sets the net present value of future cash flows to zero. If there are multiple sign changes in the cash flows, there may be multiple potential discount rates that could satisfy this equation, resulting in multiple IRRs or no IRR at all. The NPV approach, however, solves for the net present value directly using a single discount rate and does not encounter this issue.

Certain Mathematical Properties May Cause a Project with a Nonconventional