You Plan to Analyze the Value of a Potential Investment

question 164

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 increase the calculated value of the investment?

• A) the discount rate increases.
• 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 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000.
• C) the discount rate decreases.
• D) the riskiness of the investment's cash flows increases.
• E) the total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years.

---

Definitions:

Squared Deviations

The squared differences between individual values and the mean of a dataset, used in statistical analysis to measure variance.

Scatter Diagram

A visual depiction employing points to illustrate the connection between two numerical variables.

Cov(X,Y)

The covariance between two variables X and Y, measuring how changes in one variable are associated with changes in the other.

Sample Slope Coefficient

A parameter in a linear regression equation that represents the change in the dependent variable for a one-unit change in the independent variable.