When multiple IRR's exist, a project must have a negative NPV at the highest IRR.

Multiple IRR's

The possibility of obtaining more than one internal rate of return for a project or investment due to unconventional cash flows, such as alternating periods of negative and positive cash flows.

Negative NPV

A situation where the net present value of a project or investment is negative, indicating that the expected cash inflows are not sufficient to cover the initial investment and the cost of capital.

Highest IRR

The maximum internal rate of return, representing the most favorable potential annual return on an investment, adjusted for time value of money.

Acquire knowledge about the benefits and drawbacks of the IRR method, especially in distinguishing between independent and mutually exclusive projects.

Verified Answer

Stang AuerkarnJun 28, 2024

Final Answer :

False

Explanation :

Multiple IRRs occur due to non-normal cash flows (cash flow signs changing more than once), but the NPV at the highest IRR is not necessarily negative; it depends on the specific cash flow pattern and the discount rate.

Learning Objectives

Acquire knowledge about the benefits and drawbacks of the IRR method, especially in distinguishing between independent and mutually exclusive projects.

When multiple IRR's exist, a project must have a negative NPV at the highest IRR.

Definitions

Learning Objectives

Learning Objectives

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