You Plan to Analyze the Value of a Potential Investment

question 73

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:

Certainty

The state of being completely confident or having no doubt about something.

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Electronic devices that vaporize a flavored liquid, often containing nicotine, used as an alternative to smoking tobacco.

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An option that is considered to be better for one's physical or mental well-being compared to another, typically more common, option.

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The act of inhaling and exhaling the smoke produced by burning tobacco contained in cigarettes, pipes, or cigars, distinct from using electronic smoking devices.