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1 February, 22:32

Consider once again the project with the cash flows described below. Determine whether this is a simple or non - simple investment AND how many possible values of i * exist using the Accumulated Cash Flow Sign Test.

A0 = - $7,500, A1 = 4,200, A2 = 3,675, A3 = - 2,625, A4 = 5,250, A5 = - 1,050, A6 = 1,575, A7 = 675, A8 = - 3,000, A9 = 750, A10 = 750

Simple investment, at most 1 i * value

Non-simple investment, at most 1 i * value

Simple investment, at most 3 i * values

Non-simple investment, at most 3 i * values

Simple investment, at most 7 i * values

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Answers (1)
  1. 2 February, 01:02
    0
    The correct option is (D)

    Explanation:

    Using the accumulated cash flow sign test,

    - This investment is a non-simple investment.

    This is because the net cash flow changes sign (to positive and back to negative) more than once, during the study period.

    - There are at most 3 i * values. That is values for Internal Rate of Return. This is owing to the multiple change in sign during the period.

    The correct answer is option D - Non simple investment with at most 3 values for internal rate of return (i*)
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