Principles of Corporate Finance

Internal Rate of Return

Pitfall 2 - Multiple Rates of Return
w Certain cash flows can generate NPV=0 at two different discount rates.
w The following cash flow generates NPV=0 at both (-50%) and 15.2%.

1000

NPV

500

0

-500

-1000

Discount

Rate

IRR=15.2%

IRR=-50%