Principles Of Taxation For Business And Investment Planning 2020 Edition
Principles Of Taxation For Business And Investment Planning 2020 Edition
23rd Edition
ISBN: 9781259969546
Author: Sally Jones, Shelley C. Rhoades-Catanach, Sandra R Callaghan
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 3, Problem 1QPD

Does the NPV of future cash flows increase or decrease as the discount rate increases?

Expert Solution & Answer
Check Mark
To determine

Explain whether the net present value increase or decrease if the discount rate increases.

Explanation of Solution

Net present value (NPV): Net present value is used to compare the initial cash outflow of the investment with the present value of its cash inflows. The net present value is calculated as below:

Net present value = Present value of cash inflowsInitial cash outflows

The NPV of future cash flows decreases if the discount rate increases.

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“The greater the discount rate, the greater the present value of a future cash flow.” True or false? Explain your answer.
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Chapter 3 Solutions

Principles Of Taxation For Business And Investment Planning 2020 Edition

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