How do you solve this IRR question? problem, multiple, identify, question, following

ikoreaii

Two projects have the following cash flows:

Time 0 1 2
Project A 100 -275 300
Project B -100 300 -200

The internal rate of return (IRR) problem most likely to emerge with each project's cash flow is:

a. Both projects have a multiple IRR problem.
b. Project A has a multiple IRR problem, Project B has no IRR.
c. Project B has a multiple IRR problem, Project A has no IRR.


How do you identify which project has a multiple IRR or no IRR?

I'll post answer shortly. Thanks!

Siddimaula

With every change in the number being positive or negative, that's how many IRRs you will have.

So, project A goes from 100 (positive) to -275 (negative) and back to 300 (positive). So it has two IRRs

Same idea for project B.

Hope that helps.

Penny-wenny

c

Project B has multiple neg CFs - so pot. multiple IRRs
Project A has none...as initial CF is a +ve one

waldziuchna

I think it's A.

I think it is when the sign of the cash flow changes more than once, can someone elaborate?

dontknow1987

Then when will a project have no IRR?

mnieman

Project A has multiple.
B has one IRR = 0

Can't you check this by putting CF's into your calc? If it errors you have multiple IRR's.

Mechanic

jblamb - I took your approach and got this wrong.

ishfaque

The answer is C.

Earlier in this thread "cpl123" did some maths and showed that B has IRR values of 0% and 100% and so has multiple(2) real values.

For the solution for A, he left the formulation as a quadratic equation which has 2 roots but both roots are imaginary so no real roots.