5) If we use future value rather than present value to decide whether t make an

Question

5) If we use future value rather than present value to decide whether t make an investment: A) we will make the same decision using either future value or present value. B) we will make a bad decision, since the future value will always be lower if the discount rate is positive. C) we will make a bad decision, since the future value will always be higher if the discount rate is positive D) There is not enough information given to answer the question. Page 2 of 7 6) You are offered an investment opportunity in which you will receive $23,750 today in exchange for paying $25,000 in one year. Suppose the risk-free interest rate is 6% per year. Should you take this project? The NPV for this project is closest to: A) Yes; NPV- $165 B) No; NPV-$165 C) Yes; NPV- -$165 D) No; NPV- -$165

Explanation / Answer

5 c is correct because FV will yiled a higher value when rate is positive and will artificially inflate the cash flow
a is wrong because the decisions may be different
b is wrong because FV will always be higher
d is not applicable


6)
NPV=+23,750-25,000/1.06=-165
Hence one shoukld not take this project due to negative NPV
Hence option D is correct

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