An investment can have two internal rates of return

When a project collects money and later requires a large outlay, ask the analyst to inspect the whole cash-flow series before presenting its internal rate of return. Restoration, replacement, contract settlement or closure spending can create that pattern. A positive number from an IRR formula does not establish that the project has only one such rate.

An internal rate of return is a discount rate at which the project's net present value equals zero. ACCA's discussion of investment returns notes that IRR can have multiple answers. Several changes between negative and positive cash flows are a reason to investigate, although a sign change alone does not prove there will be several economically relevant results.

Start with the signed cash schedule, including amounts beyond the main operating years. Confirm that payments have not been omitted because they occur after a presentation's chosen horizon. Keep the purpose and timing of the final outlay visible to the person reviewing the return.

Use a hypothetical project with a $100,000 payment today, a $230,000 receipt at the end of year one and a $132,000 payment at the end of year two. At 10%, the present-value calculation is negative $100,000 plus $230,000 divided by 1.10, minus $132,000 divided by 1.10 squared. The result is zero, apart from rounding.

The same calculation at 20% also gives zero. Both rates satisfy the IRR definition for exactly the same cash flows. At 15%, the net present value is about positive $189; at 25%, it is negative $480. Choosing the larger of the two rates would not resolve the investment decision.

Have the adviser assess an appropriate discount basis for the project and show net present value across a reasonable range around it. Explain the funding, operating and risk assumptions behind that assessment. The example's percentages merely expose the mathematical issue; they do not indicate the rate a particular business should use.

Plotting or tabulating the relationship can reveal where the conclusion changes. Require the same complete cash schedule in every calculation. If an analyst removes the final payment to obtain a cleaner return percentage, the model now describes a different investment and needs a clear explanation of why that payment disappeared.

A modified return measure may be useful if its calculation and reinvestment or financing assumptions are explicit. It should supplement an understandable cash and value comparison. Replacing one unexplained percentage with another does not answer management's question about whether the commitment is worthwhile.

Put the cash-flow pattern and the limitation beside the return output. A later presentation may copy only the headline metric, leaving the explanation in a hidden worksheet. Specify what reviewers should see when an updated forecast introduces an additional sign change or a newly estimated closure payment.

Separate the economic evaluation from the ability to fund the later obligation. A project can appear attractive under an agreed value calculation while leaving a difficult payment date. The operating cash forecast should retain that outlay, with its funding assumption and responsible owner.

If a CFO is reviewing an inherited model, include the exact version, cash series, rate range and findings in the review record. Management should receive the corrected interpretation before using the return in a board paper or supplier negotiation. Keep any unresolved final-payment estimate visible until the appropriate specialist supports it.