You Are Scheduled to Receive Annual Payments of £10,000 for Each

question 88

Multiple Choice

You are scheduled to receive annual payments of £10,000 for each of the next 25 years.Your discount rate is 8.5%.What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each year?

• A)£8,699
• B)£9,217
• C)£9,706
• D)£10,000
• E)£10,850

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Definitions:

NPV

Net Present Value; the calculation of the present value of cash inflows minus the present value of cash outflows over a period.

Cash Flows

The movement of money into and out of a business, representing its operating, investing, and financing activities.

WACC

Weighted Average Cost of Capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted, including debt, equity, and any other long-term debt.

Reinvestment

The process of using dividends, interest, or any other form of income generated by an investment to purchase additional shares or units of that investment.