Which of the following projects would have multiple internal rates of return (IRRs)? The cost of capital for all projects is 10.0%.
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A. B. C. D.Explanation
The multiple IRR problem occurs if a project has non-normal cash flows, that is, the project has negative (net) cash flows over its life or at the end of its life. In short, the sign of the net cash flows changes from negative to positive to negative, or vice versa. For the exam, a shortcut to look for is the project cash flows changing signs more than once. Only Project South has this cash flow pattern. The 0 net cash flow in T2 for Project West and likely negative net present value
(NPV) for Project East would not necessarily result in multiple IRRs.