Question

    A telecom company is considering investing in a 4G

    expansion project with expected irregular cash inflows. The project shows multiple IRRs due to alternating signs in cash flows. Which evaluation method should be used instead of IRR?
    A Modified IRR Correct Answer Incorrect Answer
    B Net Profit Margin Correct Answer Incorrect Answer
    C Break-even analysis Correct Answer Incorrect Answer
    D Sensitivity analysis Correct Answer Incorrect Answer
    E Accounting rate of return Correct Answer Incorrect Answer

    Solution

    When a project has non-conventional cash flows (i.e., sign changes more than once), IRR may result in multiple values. Modified IRR (MIRR) gives a unique solution by assuming reinvestment at the cost of capital.

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