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A simple or conventional investment is one whose cash flow has

  • A.exactly one sign change
  • B.no sign change at all
  • C.at least two sign changes
  • D.equal positive and negative totals

Answer: A

Correct answer: exactly one sign change

A conventional investment spends first and receives afterwards: one or more negative flows, then only positive ones. That single sign change guarantees a unique internal rate of return, which is why the method can be used without qualification on such projects and needs care on any others.

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