**Using Interpolation to Compute Interest Rate for Equivalent Cash Flows**In this example, you are provided with cash flow data for a four-year period and are asked to use interpolation techniques to determine the interest rate at which the initial $240 cost is equivalent to the subsequent benefits.**Cash Flow Data:**| Year | Cash Flow ||------|-----------|| 0 | -240 || 1 | 75 || 2 | 95 || 3 | 100 || 4 | 85 |Explanation:- **Year 0:** The initial investment is $240 (this is a cash outflow, hence represented as -240).- **Year 1 to 4:** The cash inflows in the following four years are $75, $95, $100, and $85, respectively.**Goal:**Use the interpolation technique to compute the interest rate that equates the present value of the cash inflows to the initial cost of $240. Interpolation is a method used to estimate an unknown value that falls between two known values.**Process:**1. Determine the Net Present Value (NPV) for different interest rates.2. Find two interest rates where one results in a positive NPV and the other in a negative NPV.3. Apply the interpolation formula to estimate the interest rate that makes NPV zero.This cash flow data and the explanation are helpful for financial analysis and understanding the concept of time value of money in investment decisions.For a more in-depth educational resource, consider including step-by-step computational methods on interpolation to find the exact interest rate.

Given the cash flow chart as Year01234Cash Flow-240759510085

Answered: For the following cash flow, use the…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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For the following cash flow, use the interpolation technique to compute the interest rate at which the $240 cost is equivalent to the subsequent benefits. Year 0 1 Cash Flow -240 75 2 95 3 100 4 85