Question

Assuming two investments have equal lives, a high discount rate tends to favor Group of answer choices the investment with even cash flow neither investment since they have equal lives the investment with large cash flow early the investment with large cash flow late

Answer 1

Answer:

the investment with large cash flow early

Explanation:

This can be illustrated with an example.

There are 2 investments A and B

The cash flows of A =

Cash flow in year 1 = $50,000

Cash flow in year 2 = 0

Cash flow in year 3 = 0

The cash flows of B =

Cash flow in year 1 = 0

Cash flow in year 2 = 0

Cash flow in year 3 = 50,000

Discount rate for both investment is 40%

Present value of A = $35,714.29

Pesent value for B = $18,221.57

It can be seen that the investment with the higher cash flow early has a higher present value