A DCF contains only fixed positive cash inflows received in future years. With their amounts and timing unchanged, increasing a positive annual discount rate will:
Correct Answer
D) Lower the present value of the projected cash flows
For fixed positive receipts at future times, each present value is C/(1+r)^t with C>0, t>0. A larger positive rate increases each denominator and lowers the sum. This depends on positive fixed inflows and does not imply an unconditional monotonic result for mixed-sign investment cash flows.
Why This Is the Correct Answer
For fixed positive receipts at future times, each present value is C/(1+r)^t with C>0, t>0. A larger positive rate increases each denominator and lowers the sum. This depends on positive fixed inflows and does not imply an unconditional monotonic result for mixed-sign investment cash flows.
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Previous Question
Twenty units have potential monthly rent of $1,500 each for 12 months. A supported 6% combined vacancy-and-collection allowance already includes the relevant credit loss. A separate credit-risk observation is informational, not an additional deduction. No other income applies. What EGI results?
Next Question
The subject property is a rental house with no garage. A nearly identical house with a garage rents for $2,500 per month and recently sold for $630,000 in a cash transaction. Paired rentals show that a garage adds $150 to monthly rent. What is the subject’s indicated value using the gross rent multiplier from this sale?