Explanation : If the cumulative cash flows in the first two years equal the outlay and
additional cash flows are not very large, this scenario is possible. For example,
assume the outlay is 100, the cash flow in Year 1 and 2 is 50 each and the
cash flow in Year 3 is 3. The required return is 10 percent. This project would
have a payback of 2.0 years, an NPV of -10.97, and an IRR of 1.94 percent.