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

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

Lowering the discount rate has the effect of:

Decreasing the present value of future cash flows

Having no impact on the present value of future cash flows

Increasing the present value of future cash flows

Increasing the required rate of return on investments

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Verified step by step guidance

Understand the concept of the discount rate: The discount rate is used to calculate the present value of future cash flows. It reflects the time value of money and the risk associated with those cash flows.

Recognize the relationship between the discount rate and present value: A lower discount rate means that future cash flows are discounted less, resulting in a higher present value. Conversely, a higher discount rate reduces the present value of future cash flows.

Apply the formula for present value: The formula for present value is PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the discount rate, and n is the number of periods. Lowering 'r' increases the denominator less significantly, thereby increasing PV.

Analyze the options provided: Compare the effects of lowering the discount rate on the present value of future cash flows. The correct answer aligns with the principle that lowering the discount rate increases the present value.

Conclude the reasoning: Lowering the discount rate increases the present value of future cash flows because the cash flows are discounted at a lower rate, making them appear more valuable in today's terms.