Multiple Internal Rates of Return: A Revisitation

Abstract

This paper investigates the utility of certain existing rules for the identification of non‐imaginary internal rates of return in the capital budgeting process. More specifically, the paper demonstrates the applicability of Descartes' Rule of Signs, Budan's Theorem, and Sturm's Theorem from the theory of equations and rules developed in the business literature by Teichroew, Robichek, and Montalbano (1965a, 1965b), Mao (1969), Jean (1968, 1969), and Pratt and Hammond (1979). In so doing, the paper provides a framework that accounting, economic, and finance practitioners may use while grappling with the increasing possibility of multiple solutions in contemporary capital budgeting decisions.