You Plan to Analyze the Value of a Potential Investment

question 149

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 lower the calculated value of the investment?

• A) The discount rate decreases.
• B) The cash flows are in the form of a deferred annuity, and they total to $100,000.You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000.
• C) The discount rate increases.
• D) The riskiness of the investment's cash flows decreases.
• E) The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years.

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Definitions:

Market

A place or platform where buyers and sellers come together to exchange goods, services, or information, often setting prices and terms in the process.

Critical

Pertaining to a crucial or decisive point that requires immediate attention or presents a significant challenge.

Competition

The rivalry between businesses to sell their goods or services to customers, often leading to better quality and prices.

Environmental Change

Alterations to the natural environment caused by human activity or natural processes, impacting ecosystems, climate, and land use.