The CEO of BigCo has just bought a fancy financial calculator and calculated the IRR and NPV of Project D from Table 1 and is utterly confused. His calculator is telling him that the IRR is 26 percent, but when he uses a cost of capital of 1 percent, the NPV is negative. The CEO expects that if the IRR is greater than the cost of capital then the NPV should be positive. How are the CEO’s observations possible?

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Table 1 Annual cash flows (all amounts in $millions) Year 0-1,000 Year 1 Year 21,000 Year 31,200 Year 42,500 Year 5 3,000 Project A Project B Project C Project D Project E Project F Project G 5,000 4,800 1,000 6,000 3,000 -4,000 2,000 1,500 1,000 300 500 200 8,000 2,000 2,000 8,000 2,000 2,500 -5,000 2,000 3,000 5,000 1,000 3,000 10,000 3,000 2,000 1,000 1,000 3,000 3,000 1,500 1,200 300 500