You are considering an investment with the following cash flows. If the required rate of return for this investment is 15.5 percent, should you accept the investment based solely on the internal rate of return rule? Why or why not?

A)Yes; The IRR exceeds the required return.
B)Yes; The IRR is less than the required return.
C)No; The IRR is less than the required return.
D)No; The IRR exceeds the required return.
E)You cannot apply the IRR rule in this case.

Question

You are considering an investment with the following cash flows. If the required rate of return for this investment is 15.5 percent, should you accept the investment based solely on the internal rate of return rule? Why or why not?

A)Yes; The IRR exceeds the required return. 
B)Yes; The IRR is less than the required return. 
C)No; The IRR is less than the required return. 
D)No; The IRR exceeds the required return. 
E)You cannot apply the IRR rule in this case.

Quizplus · Accepted Answer

Since the cash flow direction changes twice, there are two IRRs. Thus, the IRR rule cannot be used to determine acceptance or rejection.

You Are Considering an Investment with the Following Cash Flows