Which scenario would cause a company's Present Value (PV) to increase?

Which scenario would cause a company's Present Value (PV) to increase?

• A. A decrease in expected growth rate.
• B. An increase in discount rate.
• C. An increase in expected future cash flows.
• D. A large one-time extraordinary gain.

Answer: (C)

Present Value reflects the value today of expected future cash flows, after discounting them to account for time and risk. If the expected future cash flows increase, the sum of those discounted amounts becomes larger, so the Present Value rises. The other scenarios work in the opposite way or are not about ongoing cash flows: raising the discount rate makes each future cash flow worth less today, lowering PV; a lower growth rate reduces future cash flows over time, also reducing PV; a large one-time extraordinary gain may boost current results but PV generally hinges on recurring cash flows, so unless that gain implies a sustained change, it doesn’t automatically increase PV.

Present Value reflects the value today of expected future cash flows, after discounting them to account for time and risk. If the expected future cash flows increase, the sum of those discounted amounts becomes larger, so the Present Value rises.

The other scenarios work in the opposite way or are not about ongoing cash flows: raising the discount rate makes each future cash flow worth less today, lowering PV; a lower growth rate reduces future cash flows over time, also reducing PV; a large one-time extraordinary gain may boost current results but PV generally hinges on recurring cash flows, so unless that gain implies a sustained change, it doesn’t automatically increase PV.