Why Are the Capital Costs of Long-Term Projects Discounted to Present

question 7

Multiple Choice

Why are the capital costs of long-term projects discounted to present value?

• A) Because money that is received in the future has a greater value than money received now.
• B) To better account for the resource yield that will be foregone by a long-term investment.
• C) Because the amount of money that is spent in interest payments for the project should not be incorporated into the capital budget.
• D) To better account for the relative stability of tax-free government investments as compared to private sector projects.

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Definitions:

Financial Resources

Monetary assets available to a company or individual for use in the production of further assets or to cover expenses.

Firms

Businesses or companies engaged in commercial, industrial, or professional activities, aiming to generate profits.

Tangible Capital

Physical assets owned by a person or company that are used in the production or supply of goods and services.

Intangible Capital

Nonmaterial things that contribute to the output of future goods and services.