Question

Which of the following statements is CORRECT?a. If CF0 is positive and all the other CFs are negative, then you can still solve for I.b. 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.c. 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.d. 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 FV of the negative CFs. It is impossible to find the value of I without a computer or financial calculator.e. If you solve for I and get a negative number, then you must have made a mistake

Answer 1

Answer:

If CF0 is positive and all the other CFs are negative, then you can still solve for I

TRUE.  This will be the formula for ordinary annuity.

$C \times \frac{1-(1+r)^{-time} }{rate} = PV$

This is the case of a loan on which the company receives a positive cash flow at the beginning and then makes subsequent cash payments, thus negatives cash flows.

Explanation:

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

FALSE If the sum is below the cost then it will give a negative rate

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 FV of the negative CFs. FALSE you can't compare a present value with a future as they are on different dates.

It is impossible to find the value of I without a computer or financial calculator.

FALSE There are method of approximation the difference is that the computer does this faster than humans.

If you solve for I and get a negative number, then you must have made a mistake

FALSE if the project return are lower than cost the rate will be negative.