Suppose an Investment Has Cash Inflows of R Dollars at the End

question 267

Multiple Choice

Suppose an investment has cash inflows of R dollars at the end of each year for two years. The present value of these cash inflows using a 12% discount rate will be:

• A) greater than under a 10% discount rate.
• B) less than under a 10% discount rate.
• C) equal to that under a 10% discount rate.
• D) sometimes greater than under a 10% discount rate and sometimes less; it depends on R.

---

Definitions:

Retained Earnings

The portion of net income that is retained by the company rather than distributed to shareholders as dividends, representing the cumulative earnings of the company over time.

Common Stock

Equity ownership in a corporation, with rights to vote on corporate matters and share in the profits through dividends.

Net Income

The total profit of a company after all expenses, taxes, and deductions have been subtracted from total revenue.

Dividends

Payments made by a corporation to its shareholder members, usually derived from the company's earnings.