Assuming two investments have equal lives, a high discount rate tends to favor
A) the investment with large cash flow early.
B) the investment with large cash flow late.
C) the investment with even cash flow.
D) neither investment since they have equal lives.

Question

Quizplus · Accepted Answer

A high discount rate means that the time value of money is high, so cash flows that come earlier in time are more valuable. Therefore, the investment with larger cash flow early would be favored over the investment with larger cash flow late, even if they have equal lives.

Assuming Two Investments Have Equal Lives, a High Discount Rate