hard · Principles of Finance

Which of the following is a risk of relying purely on the IRR for a project that requires significant interim capital expenditures (future outflows)?

1. The project will always have a higher NPV than IRR.
2. Multiple IRR roots may exist, leading to a mathematically ambiguous decision.
3. The IRR will systematically underestimate the project's risk.
4. The IRR cannot be calculated if any Year t cash flow is negative.

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