Which of the Following Statements Is CORRECT

question 28

Multiple Choice

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.

Understand the principles of capital budgeting including project evaluation.

Calculate net present value (NPV) of a given capital project.

Determine income tax expenses related to capital budgeting projects.

Understand the cash flow dynamics in capital budgeting including working capital management.

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