You Plan to Analyze the Value of a Potential Investment

question 36

Multiple Choice

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 discount rate increases.
• B) 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.
• C) The discount rate decreases.
• D) The riskiness of the investment's cash flows increases.
• E) 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.

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