The Expected Value of a Future Payment Differs from the Present

question 144

Multiple Choice

The expected value of a future payment differs from the present discounted value in that the expected value

• A)Takes into account the possibility of nonpayment.
• B)Uses a lower interest rate in its calculation.
• C)Uses a higher interest rate in its calculation.
• D)Assumes that future payments take place over a longer period of time.

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Definitions:

Depreciation

Allocating the price of a physical asset systematically over the duration of its effective life.

Plant Assets

Long-term tangible assets used in the operation of a business that are expected to provide benefits for more than one year, such as machinery and buildings.

Computing Depreciation

The process of systematically allocating the cost of a tangible asset over its useful life, representing how much of the asset's value has been used up.

Units-of-production

A depreciation method that allocates an asset's cost based on its usage, output, or units produced, rather than the passage of time.