Which of the following statements is CORRECT?
A) If two projects are mutually exclusive, then they are likely to have multiple IRRs.
B) If a project is independent, then it cannot have multiple IRRs.
C) Multiple IRRs can occur only if the signs of the cash flows change more than once.
D) If a project has two IRRs, then the smaller one is the one that is most relevant, and it should be accepted and relied upon.
E) For a project to have more than one IRR, then both IRRs must be greater than the cost of capital.

Question

Quizplus · Accepted Answer

C) Multiple IRRs can occur only if the signs of the cash flows change more than once. This is because the existence of multiple IRRs is associated with non-normal cash flows, where the cash flow pattern includes more than one change in the sign (from positive to negative or vice versa), leading to the possibility of calculating more than one IRR.

Which of the Following Statements Is CORRECT