1

If we use future value rather than present value to decide whether to make an​ investment:...

Question

If we use future value rather than present value to decide whether to make an​ investment:...

If we use future value rather than present value to decide whether to make an​ investment:

A.

we will make a bad​ decision, since the future value will always be lower if the discount rate is positive.

B.

we will make the same decision using either future value or present value.

C.

we will make a bad​ decision, since the future value will always be higher if the discount rate is positive.

D.

There is not enough information given to answer the question.

Answers

The correct answer is:

C. We will make a bad decision, since future value will always be higher it the discount rate is positive.

This is the concept or time value of money. Given a positive discount rate, future value will be higher, that is same amount today will be of higher worth than the same amount tomorrow. Hence, present value should be used to make decisions.


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