Which of the following statements best describes multiple IRRs?
A) For a project to have more than one IRR, both IRRs must be greater than the WACC.
B) If two projects are mutually exclusive, then they are likely to have multiple IRRs.
C) If a project is independent, then it cannot have multiple IRRs.
D) Multiple IRRs can occur only if the signs of the cash flows change more than once.

Question

Quizplus · Accepted Answer

Multiple IRRs can occur only if the signs of the cash flows change more than once. This happens when negative cash flows are followed by positive cash flows and then again by negative cash flows. In such cases, there may be more than one discount rate that makes the net present value of the project zero, resulting in multiple IRRs. A project can have multiple IRRs only if it is a non-normal cash flow stream, meaning it has more than one change in the signs of the cash flows.

Which of the Following Statements Best Describes Multiple IRRs