We classifi ed the fl aws of IRR into two types. First, we considered the general case applying to both independent and mutually exclusive projects. There appeared to be two problems here:

a. Some projects have cash infl ows followed by one or more outfl ows. The IRR rule is inverted here: One should accept when the IRR is below the discount rate.

b. Some projects have a number of changes of sign in their cash fl ows. Here, there are likely to be multiple internal rates of return. The practitioner must use either NPV or modifi ed internal rate of return here. LO.1