Multiple ROR Values Two rules apply to multiple i values:

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Presentation transcript:

Multiple ROR Values Two rules apply to multiple i values: Multiple values of i may exist when there is more than one sign change in net cash flow(CF). Such cash flow is called non-conventional. Two rules apply to multiple i values: Descarte’s rule states that the number of real i values is less than or equal to the number of sign changes in net cash flow Norstrom’s criterion states that if the cumulative cash flow starts off negatively and has only one sign change, there is only one i value

Example-No. of i Values Determine the maximum number of i values for the cash flow below Year Expense Income 0 -12,000 - 1 -5,000 + 3,000 2 -6,000 +9,000 3 -7,000 +15,000 4 -8,000 +16,000 5 -9,000 +8,000 Net cash flow -12,000 -2,000 +3,000 +8,000 -1,000 Cumulative CF -12,000 -14,000 -11,000 -3,000 +5,000 +4,000 The cumulative cash flow begins negatively with one sign change Solution: The sign on the net cash flow changes twice, indicating two possible i values Therefore, there is only one i value( i = 4.7%)