PRC-2 · Chapter 6 · Question 29 of 45
A potential weakness of the Internal Rate of Return (IRR) appraisal technique is its mathematical susceptibility to 'unconventional cash flows', which can result in:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Multiple calculated IRRs for a single project
Explanation
If a project's cash flows change signs multiple times (e.g., an initial outflow, followed by inflows, followed by a massive repair outflow), the polynomial math behind IRR can produce multiple different break-even rates, making it ambiguous.
More Discounted Cash Flows MCQs
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