Estimating future cash flows and discounting them back to the present is part of which capital budgeting technique?
A) the future value method
B) the internal rate of return
C) the net present value method
D) the payback method

Question

Quizplus · Accepted Answer

Estimating future cash flows and discounting them back to the present is a key step in the net present value (NPV) method of capital budgeting. NPV is a widely used technique that takes into account the time value of money and assesses the profitability of a project by comparing the present value of its expected cash inflows to the present value of its expected cash outflows. The project is deemed acceptable if the NPV is positive and unacceptable if it is negative. Therefore, the correct answer is C.

Estimating Future Cash Flows and Discounting Them Back to the Present