You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows.Which of the following would increase the calculated value of the investment?
A) The cash flows are in the form of a deferred annuity,and they total to $100,000.You learn that the annuity lasts for 10 years rather than 5 years,hence that each payment is for $10,000 rather than for $20,000.
B) The discount rate decreases.
C) The riskiness of the investment's cash flows increases.
D) The total amount of cash flows remains the same,but more of the cash flows are received in the later years and less are received in the earlier years.
E) The discount rate increases.

Question

Quizplus · Accepted Answer

A lower discount rate increases the present value of future cash flows, making the investment appear more valuable.

You Plan to Analyze the Value of a Potential Investment