More info: (use to answer question above)

Simple investment: An investment with only one sign change in the net cash flow series

Non-simple investment: An investment with more than one sign change occurring in the net cash flow series

i* = break even interest

Please complete question 3. Show all steps

DO THE BEST YOU CAN WITH THE GIVEN INFORMATION. NO MORE WILL BE PROVIDED.

3. [4 points) Consider the following investments opportunities with cash flows as described below. n Option A Option B Optionc 0 $3,825 $450 $2,250 4,500 3,240 4,500 | 2 4,500 -2,700 13,500 -18,000 (1 points) Classify each option as simple or non-simple investments. How many possible values of i* exist for each project? Support your answer by performing all appropriate tests to answer this question and briefly explain your results. [2 point) Find all possible i* values for Options B and C. Note: Use a mathematical approach to solving for i' in Option B and a graphical approach to finding i for Option C. Excel may be used for graphing purposes. [1 point] Classify Option C as a pure or mixed investment. c) Accept Project A Ex. 7.1: Investment Classification PW (i) PWJ>o it simple cross PWL)=0 once. i 44.24% - Net Cash Flome Test Net Cash Flow GUAL Reject (a) Project B Period Acept {Rej Convert PW (i) Accept A i B 1 Project Project Project A B C - 1,000 -1,000 1,000 -500 3,900 -450 800 -450 1,500 52,145 -450 2,000 11-5,030 10% 30% (6) not forus V Project C PW (i) 16.66% Project A: a simple inyestment Project B: a non-simple investment Project C: a simple borrowing Predicting Multiple i*s 1st Diagnostic Net Cash Flow Rule of Signs The number of real i*s that are greater than -100% for a project with N periods is never greater than the number of sign changes in the sequence of the cash flows. A zero cash flow is ignored and Diagnostic Accumulated Cash Flow Sign Test Validating results ] If the sequence of accumulated cash flow series starts negatively and changes sign only once, then a unique positive i* exists Predicting the Number of i*s Period Sign Change Net Cash- Flow Rule of Signs An -$100 -20 +50 B 3 possible it 1 2 3 4 0 Let's confim - 5 +60 -30 +100 6 Period An Accumulated Cash-Flow Sign Test Sign Change 0 Not confined Predicting the Number of i*s Accumulated Cash Flows -$100 - -100 -20 -120 50 to - ACFST 7 change 3. 0 -70 i*=122 4 6 0 -10 -30 T - 6 100 60 NCES 3 changs W Predicting the Number of its Solution Net Cash-Flow Rule of Signs .Net Cash-Flow Rule of Signs Period Accumulates Period An Sign Change Period Accumulated Cash Flows Sign Change - $100 -20 +50 0 +60 -304 +100 2 -$100 -$20 $50 SOY -$100 -$120 -$70 -$70 -$10 -$40 $60 $60) 1 1 -$30 $100 6 11 Number of real i*s 3. Number of sign changes = 1 .:: a unique i* exists &i*=10.46% 3. [4 points) Consider the following investments opportunities with cash flows as described below. n Option A Option B Optionc 0 $3,825 $450 $2,250 4,500 3,240 4,500 | 2 4,500 -2,700 13,500 -18,000 (1 points) Classify each option as simple or non-simple investments. How many possible values of i* exist for each project? Support your answer by performing all appropriate tests to answer this question and briefly explain your results. [2 point) Find all possible i* values for Options B and C. Note: Use a mathematical approach to solving for i' in Option B and a graphical approach to finding i for Option C. Excel may be used for graphing purposes. [1 point] Classify Option C as a pure or mixed investment. c) Accept Project A Ex. 7.1: Investment Classification PW (i) PWJ>o it simple cross PWL)=0 once. i 44.24% - Net Cash Flome Test Net Cash Flow GUAL Reject (a) Project B Period Acept {Rej Convert PW (i) Accept A i B 1 Project Project Project A B C - 1,000 -1,000 1,000 -500 3,900 -450 800 -450 1,500 52,145 -450 2,000 11-5,030 10% 30% (6) not forus V Project C PW (i) 16.66% Project A: a simple inyestment Project B: a non-simple investment Project C: a simple borrowing Predicting Multiple i*s 1st Diagnostic Net Cash Flow Rule of Signs The number of real i*s that are greater than -100% for a project with N periods is never greater than the number of sign changes in the sequence of the cash flows. A zero cash flow is ignored and Diagnostic Accumulated Cash Flow Sign Test Validating results ] If the sequence of accumulated cash flow series starts negatively and changes sign only once, then a unique positive i* exists Predicting the Number of i*s Period Sign Change Net Cash- Flow Rule of Signs An -$100 -20 +50 B 3 possible it 1 2 3 4 0 Let's confim - 5 +60 -30 +100 6 Period An Accumulated Cash-Flow Sign Test Sign Change 0 Not confined Predicting the Number of i*s Accumulated Cash Flows -$100 - -100 -20 -120 50 to - ACFST 7 change 3. 0 -70 i*=122 4 6 0 -10 -30 T - 6 100 60 NCES 3 changs W Predicting the Number of its Solution Net Cash-Flow Rule of Signs .Net Cash-Flow Rule of Signs Period Accumulates Period An Sign Change Period Accumulated Cash Flows Sign Change - $100 -20 +50 0 +60 -304 +100 2 -$100 -$20 $50 SOY -$100 -$120 -$70 -$70 -$10 -$40 $60 $60) 1 1 -$30 $100 6 11 Number of real i*s 3. Number of sign changes = 1 .:: a unique i* exists &i*=10.46%