If an investment has cash outflows of Q pounds at the end of each year for three years, then the present value of these cash outflows under a 10% rate of return will be
A)greater than under a 12% rate of return.
B)less than under a 12% rate of return.
C)equal to that under a 12% rate of return.
D)unknown because it depends on the size of Q.

Question

Quizplus · Accepted Answer

The present value of future cash outflows decreases as the discount rate (rate of return) increases. Therefore, the present value of the cash outflows at a 10% rate of return will be greater than at a 12% rate of return, because a lower discount rate results in a higher present value.

If an Investment Has Cash Outflows of Q Pounds at the End