Question

The present value of future cash flows: 3) increases as the discount rate decreases. O increases as the number of discounting periods increase. decreases as the number of discounting periods decrease. O decreases as the discount rate decreases.

Answer 1

The present value of cash values :

The PV can be calculated as :

CF1/(1 +R)^1 + CF2/(1+R)^2 + CF3/(1+R)^3 + CF4/(1+4)^4 + .......CFN/(1+R)^N,

As the discount rate decreases, the PV of cash flows increases.

The PV will increases, as the number of discounting periods increases and decreases as the number of discounting period decreases.

The 4th statement is FALSE.