I can not understand this question AT ALL and can not find any explanation for it. IT clearly says on page 11 of chapter 17 of the notes that if an equation has 2 IRR solutions it is a nonsense result, so.. wouldn't that make the information given in this question.. Nonsense?
I agree - I also did not understand this question. My answer was that the required return should be more than the lower of the 2 irr solutions, but that was wrong. Could somebody please assist?
Hi I agree too that this was a really tricky question. I think the notes say an equation with 2 IRRs is harder to interpret rather than nonsense I think this is the case here. Although the question asked for an "explanation" the 4 options we are given to choose from are more possible "interpretations" or decisions that could be made in the light of this info... We know that NPV > 0 is a good criteria for selecting a project. It seems likely that this project has NPV = 0 at 8% and 15% (by definition of the IRR) and a positive NPV inbetween (by the fact that NPV > 0 at 10%). So, C looks like a good decision. (The actual "explanation" of this pattern of IRRs might be to do with sign changes of cashflows - a little like Question 17.6 in the notes?) Hope this helps Lynn
