A Promise of a $100 Payment to Be Received One

question 10

Multiple Choice

A promise of a $100 payment to be received one year from today is:

• A) more valuable than receiving the payment today.
• B) less valuable than receiving the payment two years from now.
• C) equally valuable as a payment received today if the interest rate is zero.
• D) not enough information is provided to answer the question.

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Definitions:

Discount Factor

A factor by which a future cash flow is multiplied to obtain its present value.

After-Tax Discount Rate

The interest rate used in discounted cash flow analysis to calculate the present value of future cash flows after accounting for taxes.

Income Tax Rate

The rate at which taxes are levied on an individual or company's income.

Discount Factor

A multiplier used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.