Project Black Swan requires an initial investment of $115,000.It has positive cash flows of $140,000 for each of the next two years.Because of major demolition and environmental clean-up costs, cash flow for the third and final year of the project is $170 000.
A)All possible IRRs for this project are negative.
B)It is not possible to calculate an IRR for this project.
C)This project might have more than one IRR, but only one MIRR.
D)The project is unacceptable at any required rate of return.This project might have more than one IRR.

Question

Quizplus · Accepted Answer

Since the project has positive cash flows for the first two years, the IRR cannot be negative. However, the cash flow in the third year creates a potential for multiple IRRs. Therefore, the project might have more than one IRR, but it can have only one Modified Internal Rate of Return (MIRR), which is a more reliable measure for project evaluation in such cases.

Project Black Swan Requires an Initial Investment of $115,000