Suppose the Interest Rate Is 8 Percent

question 389

Multiple Choice

Suppose the interest rate is 8 percent. Consider three payment options.
1) $300 today.
2) $330 one year from today.
3) $360 two years from today.
Which of the following is correct?

• A) 1 has the highest present value and 2 has the lowest.
• B) 2 has the highest present value and 3 has the lowest.
• C) 3 has the highest present value and 1 has the lowest.
• D) None of the above is correct.

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Definitions:

Indirect Method

A method of reporting cash flows from operating activities by adjusting net income for changes in balance sheet accounts.

Accounts Receivable

Money owed to a company by its customers for goods or services already delivered but not yet paid for.

Inventory

The complete list of items, such as raw materials, work-in-progress, and finished goods, that a company holds, which are often considered as assets.

Financing Activities

Transactions involving long-term liabilities, equity, and changes in cash flows resulting from efforts to finance the company's operations.