Question

Which of the following statement(s) is/are False? Assume a positive interest rate

I. All else equal, the farther out a cash flow is the lower its present value.
II. all else equal, for the cash flows received at the same time in the future, the lower the discount rate, the lower the present vale.
A. Only I is False.
B. Only II is False.
C. Both are False.
D. Both are True.

Answer 1

False Statement:

B. Only II is False.

Step-by-step explanation:

If the cash flow from a project is farther out, the present value will be lower, all else being equal. This is because of the time value of money. This concept states that the money you receive today is higher in value than the same amount received in the future. And if the future is father out, then the value of the money will continue to reduce in relative value based on this time value of money concept.