PRC-2 · Chapter 4 · Question 38 of 60
What happens to the Present Value of a future cash flow as the discount rate increases?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It decreases.
Explanation
The discount rate is in the denominator of the PV formula. As the rate (cost of capital) rises, the value today of receiving money in the future becomes lower.
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