Net present value will be greater:
A) as a fixed set of cash receipts occurs later rather than earlier.
B) if the future value of a cash flow is smaller.
C) for twelve monthly receipts of $100 each than for one end-of-year receipt of $1200.
D) for a 6% discount rate than for a 4% discount rate.
E) All of these are true.

Question

Quizplus · Accepted Answer

The net present value will be greater for twelve monthly receipts of $100 each than for one end-of-year receipt of $1200 because the time value of money is a key factor in computing net present value. The earlier the cash flow, the less it is discounted, and the later it is expected, the more it is discounted. Thus, option A is incorrect. A smaller future value of a cash flow means less cash in hand in the future, which reduces the net present value, making option B incorrect. Option D is incorrect because a higher discount rate will decrease the net present value by increasing the rate at which future cash flows are discounted. Therefore, the correct answer is option C.

Net Present Value Will Be Greater