________ means that the present value of expected cash inflows exceeds the asset's market price.
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A. B. C. D.C
By definition: the amount the PV of expected cash flows exceeds the asset's market price is excess present value. This is also called excess economic value or excess economic returns.
The correct answer to the question is C. Excess present value.
Excess present value refers to a situation where the present value of expected cash inflows is higher than the market price of an asset. It indicates that the asset is undervalued in the market. In other words, the asset's intrinsic value is higher than its current market price.
Present value is a financial concept that calculates the current worth of future cash flows by discounting them to their current value. It takes into account the time value of money, which means that money received in the future is worth less than the same amount received today due to factors such as inflation and the opportunity cost of investing elsewhere.
When the present value of expected cash inflows exceeds the market price of an asset, it suggests that the asset is likely to generate more cash inflows in the future than what the market is currently pricing it at. Investors who recognize this undervaluation may see an opportunity to purchase the asset at a discounted price and potentially earn a higher return on their investment.
It's important to note that the present value of expected cash inflows should be determined using appropriate discount rates, which reflect the risk and time preferences of investors. Different valuation methods, such as discounted cash flow (DCF) analysis or comparable company analysis, can be used to estimate the present value of cash flows and assess whether an asset is undervalued or overvalued.
Therefore, option C, Excess present value, accurately describes the situation where the present value of expected cash inflows exceeds the asset's market price.