You Plan to Analyze the Value of a Potential Investment

question 13

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 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.
• B) The discount rate increases.
• C) The riskiness of the investment's cash flows decreases.
• D) 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.
• E) The discount rate decreases.

---

Definitions:

Market Segmentation

The process of dividing a market into distinct subsets of consumers with common needs or characteristics, to target them more effectively.

Shifting Population

Refers to demographic changes within a geography over time, including movement, growth, or decline, often impacting social, economic, and infrastructure planning.

Framework

An essential supporting structure for a system, theory, or concept that provides a guideline or context for understanding relationships and conducting analysis.

Primary Motivation

The fundamental reason or driving force behind a person's actions or behavior.