Question

Which of the following statements is CORRECT?a. Projects with "normal" cash flows can have two or more real IRRs.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. The "multiple IRR problem" can arise if a project's cash flows are "normal."d. Projects with "nonnormal" cash flows are almost never encountered in the real world.e. Projects with "normal" cash flows can have only one real IRR.

Answer 1

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

Step-by-step explanation:

Normal cash flow refers to normal expected cash flow from the project, it might be negative, or positive. But generally there is a pattern in such cash flows. Initially they might be negative, but as the project starts getting mature there is positive cash flow.

This is normal circumstance. Under this there is only one real IRR. IRR is represented as the rate of return where present value of inflows = present value of outflows.

Thus, statement is true and correct.