Asked by Allison Wagoner on Jul 21, 2024
Verified
Which of the following statements is correct?
A) If you have a series of cash flows, all of which are 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) 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.
C) If you solve for I and get a negative number, then you must have made a mistake.
D) If CF0 is positive and all the other CFs are negative, then you cannot solve for I.
Cash Flows
A reiteration emphasizing on multiple streams or instances of money being transferred into and out of a business or investment.
Present Value
The current value of a future sum of money or stream of cash flows, given a specified rate of return.
Trial-And-Error
A method of problem-solving that involves testing various methods of achieving an outcome until a satisfactory solution is found.
- Evaluate investment opportunities by understanding the principles of cash flow valuation and the time value of money.
Verified Answer
Learning Objectives
- Evaluate investment opportunities by understanding the principles of cash flow valuation and the time value of money.
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