If we ignore a zero cash flow in determining the change; then the Simple investment is:...

If we ignore a zero cash flow in determining the change; then the Simple investment is:

	a.	An investment in which the initial cash flows are negative and only one sign change occurs in the net cash flow series – a unique rate of return.
	b.	An investment in which the initial cash flows are negative and more than one sign change occurs in the net cash flow series.
	c.	A possibility of having more than one rate of return
	d.	Non of the above.

Expert Solution

It shall be noted that when zero cash flows are ignored in determining the change, then over the life of the simple investment, the initial cash flow is negative and the cash flows in later periods are positive.

It shall further be noted that cash flows at the 0th period are called the initial cash flows and is related to purchase of machines primarily.

Thus, the simple investment would be an investment where initial cash flows are negative and one sign change occurs in the net cash flow series – a unique rate of return. Because, over the later period if returns are generated, it will be treated as positive cash flows. There is no possibility of the cash flow to turn to be negative in the later period in case of simple investment.

Hence, the correct answer is a. investment in which the initial cash flows are negative and only one sign change occurs in the net cash flow series – a unique rate of return

Rahul Sunny answered 8 months ago

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