You Plan to Analyze the Value of a Potential Investment

question 16

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 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.

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Definitions:

Random Sample

A subset of individuals chosen from a larger set where each individual has an equal chance of being selected.

Sampling Process

The method or procedure used to select a subset of individuals from a population to represent the whole.

Nonsampling Error

Refers to the errors that arise during data collection and processing, which are not related to the act of sampling itself, such as measurement errors, processing errors, and coverage errors.

Wording

The choice of words or phrases in a piece of writing or speech.