Suppose an investment has cash inflows of R dollars at the end of each year for two years. The present value of these cash inflows using a 12% discount rate will be:
A) greater than under a 10% discount rate.
B) less than under a 10% discount rate.
C) equal to that under a 10% discount rate.
D) sometimes greater than under a 10% discount rate and sometimes less; it depends on R.

Question

Quizplus · Accepted Answer

The present value of cash inflows decreases as the discount rate increases. So, with a higher discount rate of 12%, the present value will be lower than under a 10% discount rate. Therefore, the correct choice is B.

Suppose an Investment Has Cash Inflows of R Dollars at the End