Aswath Damodaran 217
What do we do now?
! This project has two internal rates of return. The first is 6. 60 %, whereas the
second is 36. 55 %.
! Why are there two internal rates of return on this project?
! If your cost of capital is 12 %, would you accept or reject this project?
a) I would reject the project
b) I would accept this project
Explain.
Because there are two sign changes.
I would accept the project because the NPV (see previous page) at the 12% is
greater than zero.
Thus, when there is more than one IRR, use NPV.
