Final answer:
Investors prefer receiving cash sooner rather than later due to the time value of money and the risks associated with delayed cash flows.
Step-by-step explanation:
Investors prefer receiving cash sooner rather than later in accordance with finance theory due to the time value of money and the risks associated with delayed cash flows.
The time value of money recognizes that receiving cash sooner allows for potential reinvestment and earning of returns.
Additionally, there is an inherent risk that the expected cash flows may not materialize in the future, so getting cash sooner ensures investors receive their funds.
For example, consider a business seeking investment to fund a research and development project.
The project may take several years to generate returns.
However, investors may prefer receiving their cash earlier as they can invest those funds into other opportunities that offer shorter payback periods or higher returns.
In summary, by receiving cash sooner, investors can capitalize on the time value of money, mitigate the risks associated with delayed cash flows, and potentially explore more lucrative investment opportunities.