What does it mean when InterestThing finds multiple sign changes?
An internal rate of return calculation uses a complex series of iterations in which the rate is adjusted until a zero net present value (or near zero) is found.
For complex cashflows, it is quite possible that there is more than one sign change, and as a result, multiple solutions exist.
If multiple sign changes are detected, InterestThing will display "multiple sign changes" next to the IRR. Why?
Even though InterestThing may find a solution, this doesn't mean that there could be no other solutions: you should not base your decisions on an internal rate of return computed for a cashflow with multiple sign changes, as demonstrated in the following example.
Example
Set up the following cashflow or select the Multiple sign changes example in the Help > Examples menu.
| Date | Type | Amount | Occurs | Comment |
| 1-1-2024 | outflow | 720 | once | Initial cost |
| 1-1-2025 | inflow | 2,420 | once | Year 1 return |
| 1-1-2026 | outflow | 2,700 | once | Year 2 cost |
| 1-1-2027 | inflow | 1,000 | once | Year 3 return |
InterestThing displays 0 % as the IRR, as it started the iterations by calculating with a 0 % rate. It detects multiple sign changes so it displays a warning.
In this setup the cashflow has not one but three solutions in the range 0 to 100 % for the internal rate of return: 0 %, 11.11 % and 25 %.
Enter these values in the Rate field, to see that for each value the net present value is zero.
Select the Schedule tab to see that the sign of the balance changes from negative to positive, then to negative again and finally back to another value depending on the rate.
What does it mean when InterestThing indicates that there are no sign changes?
Having no sign changes is normally not a problem.
When calculating how regular deposits accrue to a certain end value, it is normal to have no sign changes, as only positive amounts are involved.
However, if for instance you add a loan amount as an Inflow event, when it should have been added as an Outflow event, you won't have any sign changes either, which in that context is not normal.
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