Tracy Perry, the accountant for Levy Corp., calculated the net present value for a project proposal. In making the analysis, Ms. Perry assumed that cash inflows would occur at the end of the year, when the cash inflows actually occurred evenly during the year. How will the net present value be affected?

Question

Quizplus · Accepted Answer

Assuming cash inflows occur at the end of the year rather than evenly throughout the year will result in a lower present value calculation because cash inflows are not being discounted back to their present value as early as they should be. This leads to an understatement of the net present value.

Tracy Perry, the Accountant for Levy Corp