The process of valuing an investment by determining the present value of its future cash ﬂows is called (the):
A) Constant dividend growth model.
B) Discounted cash ﬂow valuation.
C) Average accounting valuation.
D) Expected earnings model.
E) Capital Asset Pricing Model.

Question

Quizplus · Accepted Answer

The process described is exactly what is done in discounted cash flow valuation. Option A is a method for valuing stock based on consistently growing dividends, not a process for valuing investments. Option C is not a recognized valuation method. Option D is an incorrect answer - the question describes finding the present value of future cash flows, not valuing a company based on expected earnings. Option E is also incorrect - the Capital Asset Pricing Model is used to determine the required rate of return for an investment, not to value it.

The Process of Valuing an Investment by Determining the Present