Question

Which of the following statements is CORRECT?a. If a project has "normal" cash flows, then its MIRR must be positive.b. If a project has "normal" cash flows, then it will have exactly two real IRRs.c. The definition of "normal" cash flows is that the cash flow stream has one or more negative cash flows followed by a stream of positive cash flows and then one negative cash flow at the end of the project's life.d. If a project has "normal" cash flows, then it can have only one real IRR, whereas a project with "nonnormal" cash flows might have more than one real IRR.e. If a project has "normal" cash flows, then its IRR must be positive.

Answer 1

Answer: Option D

Explanation: In simple words, normal cash flows refers to those cash flows which have one initial investment at the beginning followed by a stream of inflows while in case of non normal cash flows the stream keeps changing from inflows to outflows.

Normal cash flows have only one IRR as there can only be single rate at which NPV will be zero while in case of Non normal there are two IRR due to uneven stream.

Thus, we can conclude that the correct option is D.