Discounting a future cash inflow at an 8% discount rate will result in a higher present value than discounting it at a:

Question

Quizplus · Accepted Answer

When discounting a future cash inflow, a higher discount rate results in a lower present value because the cash inflow is being valued less due to the higher opportunity cost of investing elsewhere. Therefore, if the cash inflow is discounted at an 8% rate and then discounted again at a higher rate of 9%, the present value will be lower when discounted at the higher rate. So, the best choice would be to discount the cash inflow at a lower rate than 8%, which is option C) 9% rate.

Discounting a Future Cash Inflow at an 8% Discount Rate