- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 5. Capital Investments and Capital Allocation
- Subject 2. Capital Allocation
CFA Practice Question
A project may have multiple IRRs because ______
A. it may have cash outflows at the end of the project in addition to the investment outlay at the beginning.
B. its cash flows are received far into the future or it has negative NPV.
C. it has a small investment at the beginning and a very large cash flow at the end.
Explanation: A project has multiple IRRs due to its cash flows switching directions multiple times.
User Contributed Comments 3
| User | Comment |
|---|---|
| Max27 | This answer needs to be reviewed. Choice "C" is a textbook answer to why multiple IRR'S may exist; negative NPV |
| Bibhu | No. The answer is correct. Apart from one cash flow at the beginning, it has more cash out flows during the life of the project, which could lead to NPV =0. |
| JonClark | Key words: "MAY HAVE" cash outflows at the end |