Which of the Following Statements Is Correct

question 17

Multiple Choice

Which of the following statements is correct?

• A) The value today of a bond equals the present value of all of its future cash flows.
• B) The value today of a bond is smaller than the present value of all of its future cash flows.
• C) The value today of a bond is greater than the present value of all of its future cash flows.
• D) The value today of a bond equals the future value of all of its future cash flows.

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Definitions:

Accounting Income

Accounting income is the net profit of a company, calculated according to generally accepted accounting principles (GAAP), and includes all revenues and expenses.

Incremental Cash Flows

These are the additional cash flows from operations that a business generates from taking on a new project.

Capital Budgeting

Capital budgeting is the process by which a business evaluates and selects significant long-term investments, based on potential returns and strategic objectives.

Net Acquisition

When there is a purchase and sale of assets (within the same asset class) in the same year, CCA is calculated on the capital cost of the new asset minus the lesser of the original capital cost or the net proceeds from the asset disposed.