For What Reason Is a Higher Discount Rate Is Often

question 7

Multiple Choice

For what reason is a higher discount rate is often used when performing Shareholder Value Analysis (SVA) ?

• A) To weight future cash flows more heavily than current cash flows.
• B) When the desire is to project a more optimistic scenario.
• C) To avoid overestimating the value of the business to the shareholder.
• D) When returns from capital projects are not expected to be achieved in the short term.
• E) When factors that impact cash flows are less predictable.

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Definitions:

Cash Generating Units

A segment of a company's operations that independently generates cash flows from its activities.

Carrying Amount

The amount at which an asset is recognized in the balance sheet after deducting any accumulated depreciation (amortization) and accumulated impairment losses.

Value In Use

The value today of the cash flows that are expected to come from an asset or a revenue-producing entity in the future.