[smrichard]

So far I haven’t been that pleased with the Wiley software explanations. Pretty much the way I read the explanation is no better than my two year old could explain it. Why is this the best answer? Because it’s the best answer, that’s why.

I need help understanding WHY this answer is the best answer. Can anybody explain?

Which of the following changes would result in the highest present value?

A. A $100 decrease in taxes each year for four years.

B. A $100 decrease in the cash outflow each year for three years.

C. A $100 increase in disposal value at the end of four years.

D. A $100 increase in the cash inflow each year for three years.

Explanation:

Answer A is correct. The requirement is to identify the changes that would result in the highest present value. Answer A is correct because a decrease in taxes by $100 each year for four years woudl result in the highest present value.

This explanation basically says that A is correct because I told you so. WHY???

FAR 82
AUD 81 (2007), 73, 80
REG 68 (2010), 76
BEC 58 (2007), 75 DONE!!!!

[Minimorty]

Its basically just a simple present value calculation. Given those four scenarios, letter A gives you the highest amount. You want the highest present value right? So…

A>B because you have 4 years of cash flow at $100 (each year) instead of 3 years at $100 (each year)

A>C because because all you get in C is $100 in value after 4 years, while A gives you $100 for EACH of the next 4 years.

A>D because you have 4 years of cash flow at $100 (each year) instead of 3 years at $100 (each year)

you can verify the calculation by spreading the cash flows for each year and discounting them back at the same discount rate to get your present value. Whichever gives you the highest amount (A) is your answer.

[smrichard]

Thank you SO MUCH! Now that you break it down it makes so much more sense. I really appreciate your help.

FAR 82
AUD 81 (2007), 73, 80
REG 68 (2010), 76
BEC 58 (2007), 75 DONE!!!!

[Author]

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