18. Which of the following statements is CORRECT? a. Projects with \"normal\" ca

Question

18.

Which of the following statements is CORRECT?

a. Projects with "normal" cash flows can have only one real IRR. b. Projects with "normal" cash flows must have two changes in the sign of the cash flows, e.g., from negative to positive to negative. If there are more than two sign changes, then the cash flow stream is "nonnormal." c. Projects with "normal" cash flows can have two or more real IRRs. d. The "multiple IRR problem" can arise if a project's cash flows are "normal." e. Projects with "nonnormal" cash flows are almost never encountered in the real world

Explanation / Answer

a. Projects with "normal" cash flows can have only one real IRR.

Projects with normal cash flows will have only one IRR because it is not possible to get two discount rates which makes NPV of a normal Cash Flow zero.

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