Which of the following statements is correct?

A) If you have a series of cash flows, all of which are 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.
B) 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 PV of the negative CFs. This is, essentially, a trial-and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise.
C) If you solve for I and get a negative number, then you must have made a mistake.
D) If CF₀ is positive and all the other CFs are negative, then you cannot solve for I.

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Linsey Hunter · Accepted Answer

Final Answer : B, Explanation :  Statement B is correct because it describes the process of finding the internal rate of return (IRR), which is the interest rate that makes the net present value (NPV) of all cash flows (both positive and negative) from a particular project equal to zero. This process often requires trial-and-error or iterative methods, which are facilitated by the use of computers or financial calculators.

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