A single IRR can be calculated from this type of project, with the IRR compared to a company's hurdle rate to determine the economic attractiveness of the project.
Contrast the conventional type to unconventional. Unconventional cash flows involve more than one change in cash flow direction, which result in two IRRs.
Two IRRs can cause decision uncertainty for management if one IRR exceeds the hurdle rate and the other does not. Not sure about which IRR will prevail, management will not have the confidence to go ahead with the investment. Conventional Cash Flow in Mortgages. A mortgage is also a good example of a typical conventional cash flow.
Suppose a financial institution lends 300,000 to a homeowner or real estate investor at a fixed interest rate of 5 for 30 years.
The lender then receives approximately 1,610 per 0 percent personal loans (or 19,325 annually) from the borrower towards mortgage principal repayment and interest.
If annual cash flows are denoted by mathematical signs from the lender's point of view, this would appear as an initial - followed by signs for the next 30 periods.
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