Multiple IRR & calculator?

[kochunni69]

Could anybody say how TI plus will show multiple IRRs if a stream of cash flows results in multiple IRRs?

 

[strangedays]

Man, if there are multiple IRR the calculation will take the one closest to the beginning period.
For complex cash flows…unfortunately you need to use a PC.
Note: IRR is a very complex calculation.

 

[kochunni69]

Seems like if we are given a stream of cash flow and asked to decide the multiple IRRs, I think I should try to fnd the rates for which NPV = 0.
Again, that’s a trial and error method.

 

[strangedays]

Guys, read the manual, if there are more that one IRR you will get “Error” appear in your screen.

 

[CFAjunkie]

kochunni, i have never seen any LOS stating that “calculate multiple IRRs”. we are required to know what are the problems arising from multiple IRRs, so chill out…

 

[kochunni69]

I came across couple of questions in schweser. Here is an example. This is from
Which of the following statements about the internal rate of return (IRR) for a project with the following cash flow pattern is TRUE?
Year 0: -$ 2,000
Year 1: $ 10,000
Year 2: -$ 10,000
A) It has two IRRs of approximately 38 and 260 percent.
B) It has a single IRR of approximately 38 percent.
C) It has a single IRR of approximately 260 percent.
D) No IRRs can be calculated.
Your answer: A was correct!
The number of IRRs equals the number of changes in the sign of the cash flow. In this case, from negative to positive and then back to negative. Although 38 percent seems appropriate, one should not automatically discount the value of 260 percent.
Check answers by calculation:
10,000/1.38 - 10,000/1.382 = 1995.38
And
10,000/3.6 - 10,000/3.62 = 2006.17
Both discount rates give NPVs of approximately zero and thus, are IRRs.

 

[cpk123]

usually it will be a quadratic equation.
so solve
-2000 + 10000/(1+r) -10000/(1+r)^2 = 0
and you get a quadratic in r.
solve for r
the other approach
use the answers given, substitute backwards and then get the answer.
the third approach which would work –> given that the cashflows have opposing signs –> inflow first year, outflow second year and an inflow again in the 3rd year –> you would have the multiple IRR situation.
So B, C and D are therefore eliminated.
Hence A is the answer.
CP

 

[map1]

Or you use the NPV function of your calculator, with I as the IRRs indicated in the solutions.

 

[kochunni69]

<>
Thast what I do.

 

[amberpower]

I agree with CPK…I have yet to see a question where they ask you what the actual 2 answers are, they just want you to know that there could be 2 b/c of the sign changes.

 

[daj224]

They will not ask for a number re: multiple IRR questions, probably more of a qualitative question like the one above.
The post about the # of IRRS being = the number of cash flow SIGN changes is right

 

[Darius-I]

if at all they ask a multiple IRR question ..
TI BA-II Plus calculates and displays the one closest to ZERO
and find the other one in the alternatives by using it to discount the cash flows … they may not give more than a couple of periods for all you know ..

 

[maratikus]

I’d highly recommend using cpk’s approach.