Asked by imane sahbani on Jul 07, 2024
Verified
Net present value will be greater
A) as a fixed set of cash receipts occurs later rather than earlier.
B) as the total of the cash receipts, made in same time periods, is smaller.
C) for one end-of-year receipt of $1200 than for twelve monthly receipts of $100 each.
D) for a 4% discount rate than for a 6% discount rate.
E) All of the above are true.
Net Present Value
The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used in capital budgeting to assess the profitability of investments.
Fixed Cash Receipts
Fixed Cash Receipts refer to the regular, unchanging amount of cash received by a business or individual, typically structured within certain financial arrangements or revenue models.
Discount Rate
The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.
- Evaluate the economic feasibility of different capacity options through the application of net present value analysis.
Verified Answer
EV
Elyssa VasquezJul 11, 2024
Final Answer :
D
Explanation :
Net present value (NPV) is higher when the discount rate is lower because future cash flows are discounted at a lower rate, making their present value higher. Choices A, B, and C would all lead to a lower NPV due to the time value of money principle, where money available at the present time is worth more than the same amount in the future.
Learning Objectives
- Evaluate the economic feasibility of different capacity options through the application of net present value analysis.