As the discount rate increases without limit, the present value of the future cash inflows
A)Gets larger without limit.
B)Stays unchanged.
C)Approaches zero.
D)Gets smaller without limit, i.e., approaches minus infinity.
E)Goes to ern.

Question

Quizplus · Accepted Answer

According to the formula for present value, as the discount rate increases, the denominator of the formula increases, which means the present value decreases. When the discount rate approaches infinity, the present value approaches zero. Therefore, the correct choice is C, which says that the present value approaches zero as the discount rate increases without limit.

As the Discount Rate Increases Without Limit, the Present Value