You Plan to Analyze the Value of a Potential Investment

question 43

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:

Debtor

An individual or entity that owes money to another party, often a lender or creditor.

Perfection

In the context of secured transactions, perfection is the legal process by which a secured creditor establishes its priority interest in the debtor's collateral over other claimants.

Legal Steps

Sequential actions or procedures that are taken in accordance with law to achieve a legal outcome, such as filing a lawsuit or executing a contract.

Collateral

Assets or property offered as security for the repayment of a loan, subject to seizure on default.