Which statement about multiple IRRs is true?
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 is because the IRR calculation assumes that the cash flows are changing signs only once. If there are multiple sign changes, then the project may have multiple IRRs. The other options are incorrect. For option A, for a project to have more than one IRR, at least one IRR must be less than the WACC. For option B, mutually exclusive projects cannot have multiple IRRs. And for option C, independent projects can have multiple IRRs if there are multiple sign changes in the cash flows.

Which Statement About Multiple IRRs Is True