Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

Which of the following would increase the present value of a single future cash flow, assuming all other factors remain constant?

Decreasing the discount rate

Increasing the discount rate

Increasing the number of periods until payment

Decreasing the amount of the future cash flow

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Verified step by step guidance

Understand the concept of present value: Present value (PV) is the current worth of a future sum of money or cash flow, discounted at a specific rate. It is calculated using the formula: PV = \( \frac{FV}{(1 + r)^n} \), where FV is the future value, r is the discount rate, and n is the number of periods.

Analyze the impact of the discount rate: A lower discount rate (r) reduces the denominator \((1 + r)^n\), which increases the present value. Conversely, a higher discount rate increases the denominator, decreasing the present value.

Evaluate the effect of the number of periods (n): Increasing the number of periods until payment (n) raises the power of \((1 + r)\), making the denominator larger and reducing the present value. Decreasing the number of periods would have the opposite effect.

Consider the amount of the future cash flow (FV): A decrease in the future cash flow directly reduces the numerator (FV), which lowers the present value. Increasing the future cash flow would increase the present value.

Conclude the correct factor: Decreasing the discount rate increases the present value because it reduces the rate at which the future cash flow is discounted, making the current value of the cash flow higher.