Final answer:
To resolve the multiple IRR situation, you can use the Modified Internal Rate of Return (MIRR) formula. MIRR takes into account cash inflows and outflows, and incorporates a reinvestment rate for interim cash flows.
Step-by-step explanation:
When encountering a situation with multiple IRRs, the Modified Internal Rate of Return (MIRR) is often used to resolve the issue. MIRR takes into account both the cash inflows and outflows over the project's lifespan, and considers a reinvestment rate for the interim cash flows.
To calculate MIRR, you would:
- Estimate the cash inflows and outflows for the project.
- Determine the reinvestment rate for the interim cash flows.
- Calculate the present value of the cash inflows and outflows at the project's required rate of return.
- Find the future value of the negative present value of outflows.
- Combine the present value of inflows with the future value of outflows, and calculate the IRR of this combined cash flow.