True or false the present value of series of cash flows increases as the opportunity cost...

Question

Question

True or false

the present value of series of cash flows increases as the opportunity cost rate increases

Answer 1

Answer #1

False.

the present value of series of cash flows decreases as the opportunity cost rate increases.

This question requires application of basic time value of money function, according to which FV = PV * (1 + r) where FV is F

Based on the above relation,

$AV PV - PV = 11+r)$

So for any cash flow, rate of return or discount rate is inversely proportional to PV. If discount rate increases, PV decreases, and vice-versa.

Answer 2

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