Question #23098

which of the following statements is correct? a. if you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of the causes the PV of the cash flow to equal the cash flow a time 0

Expert's answer

Which of the followingstatements is CORRECT? a. If you have a series of cash flows, each of which is

positive, you can solve for I, where the solution value of I causes the PV of

the cash flows to equal the cash flow at Time 0. b. If you have a series of

cash flows, and CF0 is negative but each of the following CFs is positive, you

can solve for I, but only if the sum of the undiscounted cash flows exceeds the

cost. c. To solve for I, one must identify the value of I that causes the PV of

the positive CFs to equal the absolute value of the PV of the negative CFs.

This is, essentially, a trial-and-error procedure that is easy with a computer

or financial calculator but quite difficult otherwise. d. If you solve for I

and get a negative number, then you must have made a mistake. e. If CF0 is

positive and all the other CFs are negative, then you cannot solve for I.

**Answer:**

c. To solve for I, one must identify the value of I that causes the PV of the

positive CFs to equal the absolute value of the PV of the negative CFs.

This is, essentially, a trial-and-error procedure that is easy with a computer

or financial calculator but quite difficult otherwise.

positive, you can solve for I, where the solution value of I causes the PV of

the cash flows to equal the cash flow at Time 0. b. If you have a series of

cash flows, and CF0 is negative but each of the following CFs is positive, you

can solve for I, but only if the sum of the undiscounted cash flows exceeds the

cost. c. To solve for I, one must identify the value of I that causes the PV of

the positive CFs to equal the absolute value of the PV of the negative CFs.

This is, essentially, a trial-and-error procedure that is easy with a computer

or financial calculator but quite difficult otherwise. d. If you solve for I

and get a negative number, then you must have made a mistake. e. If CF0 is

positive and all the other CFs are negative, then you cannot solve for I.

c. To solve for I, one must identify the value of I that causes the PV of the

positive CFs to equal the absolute value of the PV of the negative CFs.

This is, essentially, a trial-and-error procedure that is easy with a computer

or financial calculator but quite difficult otherwise.

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