The discounted cash flow method determines the net present value of all cash flows by discounting them by the __________.
A)hurdle rate
B)acceptable rate
C)internal rate of return
D)net present value

Question

Quizplus · Accepted Answer

The discounted cash flow method involves discounting all cash flows by the hurdle rate or required rate of return, which represents the opportunity cost of investing capital elsewhere. The net present value is then determined by subtracting the initial investment from the total present value of cash flows. Choice B is incorrect because there is no such thing as an "acceptable rate" in finance. Choice C is incorrect because the internal rate of return is a different method for evaluating investments, not a discount rate for the discounted cash flow method. Choice D is incorrect because the net present value is the result of the discounted cash flow analysis, not a discount rate.

The Discounted Cash Flow Method Determines the Net Present Value