Asked by Victoria Nguyen on Apr 24, 2024
Verified
A larger interest rate will reduce all of the following, except the:
A) initial cash flow.
B) net present value.
C) present value of future cash outlays.
D) profitability index.
Net Present Value
A financial metric that calculates the present value of all future cash flows associated with an investment, minus the initial investment cost.
Present Value
The current worth of a future sum of money or stream of cash flows given a specified rate of return.
- Determine the difficulties and essential phases integral to the capital budgeting procedure.
- Comprehend the critical role of a corporation's cost of capital in the evaluation of investment projects.
Verified Answer
ED
Esther De Jesus6 days ago
Final Answer :
A
Explanation :
A larger interest rate will increase the discount rate used in calculating present value, which will decrease the present value of future cash flows and therefore the profitability index and net present value. However, it will not affect the initial cash flow, which is a fixed value at the beginning of the project.
Learning Objectives
- Determine the difficulties and essential phases integral to the capital budgeting procedure.
- Comprehend the critical role of a corporation's cost of capital in the evaluation of investment projects.
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