Suppose a project results in a net stream of $200 per year for 4 years, but nothing thereafter, Assume that the discount rate is 5 percent. The discounted value of the total income stream over the 4-year period is ?
Correct answer: C. more than zero but less than 800
- A. 800
- B. 40,000
- C. more than zero but less than 800
- D. less than zero
Explanation
Discounting makes each future $200 payment worth less than $200 today, although every payment remains positive. Therefore, the present value is positive but below the undiscounted total of $800.
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