You Plan to Analyze the Value of a Potential Investment

question 16

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 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.
• B) The discount rate decreases.
• C) The riskiness of the investment's cash flows increases.
• D) 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.
• E) The discount rate increases.

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Definitions:

Warranty Repairs

Warranty repairs are services provided to fix defects in products that are under warranty without additional charge to the consumer. These costs are often anticipated and accounted for by the manufacturer.

Physical Count

A process of manually counting actual inventory to verify quantities and ensure accuracy of records.

Lower Of Cost

An accounting principle that valuates inventory at the lower amount between its original cost and current market value.

Market

A venue where buyers and sellers engage in the trade of goods, services, or securities, affecting prices through supply and demand dynamics.