标题: How to derive the number 3.6 is this calculation on IRR and NPV [打印本页] 作者: domani 时间: 2011-7-11 18:38 标题: How to derive the number 3.6 is this calculation on IRR and NPV
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?
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%.
