Question

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 O Non-simple investment, at most 1 i* value Simple investment, at most 3 i* values O Non-simple investment, at most 3 i* values O Simple investment, at most 7 i* values

Answer 1

Year 1 Cash Flow Cumulative CF Sign Change -7500 -7500 4200 -3300 3675 375 -2625 -2250 5250 3000 -1050 1950 1575 675 4200 -3000 1200 750 1950 750 2700 3525

It is a non-simple cash flow as in the accumulated cash flow there are more than one sign changes.

We can see that, in total, there are 3 sign changes in the accumulated cash flows. So, there will be at most 3 values for i.

Thus, the correct option is d.