Answer:
a. What does Descartes' rule of signs tell you about the IRR(s) of the project?
Descartes' rule of signs state that a project will have the same number of IRRs as the number of times its cash flows change of signs. In this case, there is only one change of sign, therefore, there is only one IRR.
b. What does Norstrom’s criterion tell us about the IRR(s) of this project?
Norstrom's criterion states that a project that has only one negative cash flow at the beginning and then has only positive cash flows, will have only one IRR.
c. What is the IRR(s) for this project?
-11.84%
d. Is this project economically attractive?
No, this project is definitely not economically attractive, you would lose money by investing in it.
Explanation:
EOY NCF
0 $-105
1 $11
2 $11
3 $11
4 $11
5 $11
6 $11
IRR = -11.84%
