A Note on the IRR of a Project with Many Potential Outcomes

The net present value (NPV) of an investment project having many potential outcomes can be expressed as a weighted average of the NPVs calculated from the individual outcomes, the weights being the outcome probabilities. Danielson (2016) demonstrates that this formula does not apply to the internal rate of return (IRR) of a project having many potential outcomes, the weights in particular coming under scrutiny; the weights are redefined to depend on cash flow structures as well as outcome probabilities. This note elaborates on Danielson's result, demonstrating another presentation in which the weights are the outcome probabilities alone.