Consider the following cash flow [-100, + 230, -132]. We want to decide under what range of discount rate this is an advantageous investment. But noting the change in sign, we conclude IRR is not a suitable instrument. Write the expression for NPV using the unknown r as discount rate.

NPV = -100 + 230 /(1+r) + (-132)/(1+r)^2

By calculating the NPV for various values of r we can then get a better understanding as to when this investment is more likely to yield positive returns. Generally speaking, investments with positive NPVs are more attractive since they indicate that potential profits exceed costs while investments with negative NPVs may not generate sufficient returns over time and should thus be avoided if possible.

It is important to note here that while Internal Rate of Return (IRR) is typically used to measure profitability in such cases, it cannot be applied here due to the alternating signs within the cash flow data set. As such, using NPV instead allows us to assess potential gains or losses without relying on IRR calculations.