How to derive the number 3.6 is this calculation on IRR and NPV understand, statements, following, question, number

domani

Hi,
i do not really understand how to derive the calculations for this question below. why does it use 3.6 it the calculation and how it gets the 3.6?

Thanks

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Which of the following statements about the internal rate of return (IRR) for a project with the following cash flow pattern is CORRECT?

Year 0: -$ 2,000
Year 1: $10,000
Year 2: -$ 10,000

A) It has two IRRs of approximately 38% and 260%.

B) No IRRs can be calculated.

C) It has a single IRR of approximately 38%.


Your answer: B was incorrect. The correct answer was A) It has two IRRs of approximately 38% and 260%.

The number of IRRs equals the number of changes in the sign of the cash flow. In this case, from negative to positive and then back to negative. Although 38% seems appropriate, one should not automatically discount the value of 260%.

Check answers by calculation:

10,000