Question

Which Statement is True? Finance Related Question

A.)In cost benefit analysis, a benefit of the same magnitude that comes farther in the future has a smaller present value

B.)When a discount rate increases the present value of a future benefit also increases

C.) Both Statements are false

Answer 1

Correct statement is option (A) In cost benefit analysis, Benefit of the same magnitude which will be coming farther in the future has a smaller present value because these cash flows which are occurring at a later stages of the life of the project are discounted with higher amount of time value and they are having a lower value at a present because they will be losing their value due to higher inflation and other macroeconomic factors.

The other statements about discounting rate is false.

Correct answer will be option (A) In cost benefit analysis, Benefit of the same magnitude that comes farther in the future has a smaller present value.