Hi John,
Regarding the Project Duration calculation, how will the calculation change when there is a negative cash flow in the middle of project time? Lets say the investment costs were at Y0, then followed by initial positive cash flows in Y1 and Y2, then negative in Y3 either because of additional investment or lower sales, then followed by positive cash flows in later years. Then, how do we deal with such negative cash flow in Y3 in the duration calculation? Do we subtract it from the Sum of PV * year?
Thank you
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Duration with negative cash flows
7y ago#1You would include the negative cash flow in Yr 3 in the calculations in exactly the same way as you would if it was positive (expect obviously you would be subtracting rather than adding).
I certainly would not expect this to ever be relevant for the exam.
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