Question

Which of the following statements is CORRECT? a. 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.
b. If you have a series of cash flows, and CFO is negative but each of the following CFs is positive, you can solve for 1, but only if the sum of the undiscounted cash flows exceeds the cost.
c. If CFO is positive and all the other CFs are negative, then you cannot solve for 1.
d. If you solve for I and get a negative number, then you must have made a mistake
e. If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value ofI causes the PV of the cash flows will be more than the cash flow at Time 0.

Answer 1

The correct statement is c. If CFO is positive and all the other CFs are negative, then you cannot solve for I.

Step-by-step explanation:

The correct statement is c. If CFO is positive and all the other CFs are negative, then you cannot solve for I.

1. a. 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.
2. b. If you have a series of cash flows, and CFO 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.
3. c. If CFO is positive and all the other CFs are negative, then you cannot solve for I.
4. d. If you solve for I and get a negative number, then you must have made a mistake.
5. e. 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 will be more than the cash flow at Time 0.