Assume that an investment of $1,000 produces a future cash flow of $1,000. The discount factor for
Question:
Assume that an investment of $1,000 produces a future cash flow of $1,000. The discount factor for this future cash flow is 0.89. The net present value is
a. $0.
b. $110.
c. $2,000.
d. $911.
e. none of the above.
Step by Step Answer:
Present value of inflowscash inflo...View the full answer
Cornerstones of Managerial Accounting
ISBN: 978-0324660135
3rd Edition
Authors: Mowen, Hansen, Heitger
Related Video
The present value of future cash flows is calculated to determine the value today of a stream of future cash flows. It is calculated by discounting the future cash flows to their present value using a discount rate. The discount rate reflects the time value of money and the risk of the cash flows. It is important because it helps in making investment decisions, capital budgeting, loan decision making, and financial planning. By discounting future cash flows to their present value using a discount rate, it takes into account the time value of money and the risk associated with the cash flows. This allows investors, lenders, and financial planners to evaluate the viability of potential investments, projects, or loan applications, and to estimate the future value of investments or savings. calculating the present value of future cash flows is important in making investment decisions, capital budgeting, loan decision making, and financial planning. It helps to determine the viability of long-term projects, evaluate loan applications, and estimate the future value of investments or savings.
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