Question

An investment that generates a series of uniform and equal cash amounts is referred as A.net...

An investment that generates a series of uniform and equal cash amounts is referred as

A.net present value.

B.future value.

C.cash flow.

D.an annuity.

Homework Answers

Answer #1

The correct option is : an annuity

An annuity is equal series of payments over a fixed period of time at a specified interest rate where:

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
Future value of annuity=Annuity[(1+rate)^time period-1]/rate

Also;

NPV=Present value of inflows-Present value of outflows

where

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

Cash flow means cash generated by the firm through sale of fixed asset,equipment etc and can happen for a single event/series of events and hence can not be necessarily termed as an annuity cash flow

Also a future value can be discounted to the present value using discounting rate such as :

Present value=Future value*Present value of discounting factor(rate%,time period)

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