Which statement regarding normal cash flows is correct?
A)Projects with normal cash flows can have only one real IRR.
B)Projects with normal cash flows can have two or more real IRRs.
C)The "multiple IRR problem" can arise if a project's cash flows are normal.
D)Projects with non-normal cash flows are almost never encountered in the real world.

Question

Quizplus · Accepted Answer

Normal cash flows involve an initial outlay followed by a series of positive cash inflows, which means there can only be one sign change in the cash flow stream. This characteristic ensures that there can only be one real Internal Rate of Return (IRR), as the IRR is found by solving the equation where the net present value equals zero, and the existence of a single sign change guarantees only one real root to this equation.

Which Statement Regarding Normal Cash Flows Is Correct