Why should I worry about multiple sign changes?

Problem

An internal rate of return calculation uses a complex series of iterations in which the rate is varied until a zero net present value (or near zero) is found.

For complex cash flows, it is quite possible that there is more than one sign change, and as a result, multiple solutions exist.

If multiple sign changes are detected, FinFlow won't even try to find a solution. Why?

Answer

Because these solutions have no meaning: you should never base your decisions on an internal rate of return computed for a cash flow with multiple sign changes!

When there are multiple sign changes, you may be able to see what rates result in a zero net present value by switching to the Rate chart pane.

Example

Open the "Analysis - Multiple sign changes" example in the Help examples folder for an example of a cash flow that has multiple sign changes.

This cash flow has three positive solutions for the internal rate of return: 0%, around 11 % and 25 %.

For an enlarged view, enter 0 in the "from" field and 25 in the "to" field. If necessary, increase the number of steps to 100.