Question

3. Consider the following cash flows. How many different IRRs are there (hint: search between 20% and 70%)? What would be your decision? year Cash Flow 504 2862 6070 5700 2000 0 3

Answer 1

A cursory glance shall show us that the cash flows reverse directions four times and hence there shall be 4 IRRs as a general rule.

Year	Cash flow
0	$      (504.00)
1	$    2,862.00
2	$ (6,070.00)
3	$    5,700.00
4	$ (2,000.00)
IRR1	25.00%
IRR2	66.67%
IRR3	42.86%
IRR4	33.33%

A summary of calculations:The decioson

Rate	IRR
1%	25%
2%	25%
3%	25%
4%	25%
5%	25%
6%	25%
7%	25%
8%	25%
9%	25%
10%	25%
11%	25%
12%	25%
13%	25%
14%	25%
15%	25%
16%	25%
17%	25%
18%	25%
19%	25%
20%	25%
21%	25%
22%	25%
23%	25%
24%	25%
25%	25%
26%	25%
27%	25%
28%	25%
29%	33%
30%	33%
31%	33%
32%	33%
33%	33%
34%	33%
35%	33%
36%	33%
37%	33%
38%	25%
39%	43%
40%	43%
41%	43%
42%	43%
43%	43%
44%	43%
45%	43%
46%	43%
47%	43%
48%	43%
49%	43%
50%	43%
51%	43%
52%	43%
53%	43%
54%	43%
55%	43%
56%	33%
57%	43%
58%	33%
59%	67%
60%	67%
61%	67%
62%	67%
63%	67%
64%	67%
65%	67%
66%	67%
67%	67%
68%	67%
69%	67%
70%	67%
71%	67%
72%	67%
73%	67%
74%	67%
75%	67%
76%	67%
77%	67%
78%	67%
79%	67%
80%	67%
81%	67%
82%	67%
83%	67%
84%	67%
85%	67%
86%	67%
87%	67%
88%	67%
89%	67%
90%	67%
91%	67%
92%	67%
93%	67%
94%	67%
95%	67%
96%	67%
97%	67%
98%	67%
99%	67%
100%	67%

The decision shall be to accept the project if required return is any 25% or less as that is the least IRR.