Which of the following scenarios would create problems, if you are trying to det

Question

Which of the following scenarios would create problems, if you are trying to determine which of two projects to accept using the internal rate of return?

I. one of the projects has cash outflows for two years and cash inflows thereafter
II. the projects are mutually exclusive
III. one project has an initial cost of $22,000 while the other one costs $324,000
IV. one of the projects has unconventional cash flows

IV only

I, II, III, and IV

II, III, and IV only

I and III only

I, II, and IV only

IV only

I, II, III, and IV

II, III, and IV only

I and III only

I, II, and IV only

Explanation / Answer

Answer is : C : II, III and IV

Explanation: IRR cannot be calculated accurately when the projects are mutually exclusive. There can be multiple IRRs when there are unconventional cash flows and when there is a huge difference in the intial cash flows, the IRR can throw a number error.

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