Determine the maximum number of i* values for the cash flow shown below Expense Cumulative CF -12,000 -12,000 -5,000 -14,000 -6,000 -11,000 -7,000 -3,000 -8,000 +5,000 -9,000 +4,000 Year 0 2 cGraw-Hill Education. 3 Example: Multiple i* Values 5 Income n/a +3,000 +9,000 +15,000 +16,000 +8,000 Solution: The sign on the net cash flow changes twice, indicating two possible i* values Net cash flow -12,000 -2,000 +3,000 +8,000 +8,000 -1,000 The cumulative cash flow begins negatively with one sign change Therefore, there is only one i* value (i* = 8.7%) Insert Photo Credit Here

Determine the maximum number of i* values for the cash flow shown below Expense Cumulative CF -12,000 -12,000 -5,000 -14,000 -6,000 -11,000 -7,000 -3,000 -8,000 +5,000 -9,000 +4,000 Year 0 2 cGraw-Hill Education. 3 Example: Multiple i* Values 5 Income n/a +3,000 +9,000 +15,000 +16,000 +8,000 Solution: The sign on the net cash flow changes twice, indicating two possible i* values Net cash flow -12,000 -2,000 +3,000 +8,000 +8,000 -1,000 The cumulative cash flow begins negatively with one sign change Therefore, there is only one i* value (i* = 8.7%) Insert Photo Credit Here

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please show the solution of finding the i*value which is 8.7%

Determine the maximum number of i* values for the cash flow shown below
Expense
- 12,000
-5,000
-6,000
-7,000
-8,000
-9,000
Year
0
1
2
3
4
OMcGraw-Hill Education.
Example: Multiple i* Values
5
Income
n/a
+3,000
+9,000
+15,000
+16,000
+8,000
Solution:
The sign on the net cash flow changes
twice, indicating two possible i* values
Net cash flow
-12,000
-2,000
+3,000
+8,000
+8,000
-1,000
Cumulative CF
- 12,000
- 14,000
-11,000
-3,000
+5,000
+4,000
The cumulative cash flow begins
negatively with one sign change
Therefore, there is only one i* value (i* = 8.7%)
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