You are analyzing the value of an investment by calculating the presen

QUESTION

You are analyzing the value of an investment by calculating the present value of its expected cash flows. Which of the following would cause the investment to look better?
a. The discount rate decreases.
b. The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same.
c. The discount rate increases.
The riskiness of the projects cash flows increases.
d. The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years.
Ans)a. The discount rate decreases Explanation: If the discount rate decreases, the PV will increase as PV = FV/(1+r)^n. When r decreases, the denominator decreases and thus, the PV increases. So, the investment would look better

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