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Answer to Question #23098 in Other Economics for todd

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.

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