Which of the following is true of discounted cash flow methods such as NPV and IRR?

Question

Quizplus · Accepted Answer

Discounted cash flow methods such as NPV (Net Present Value) and IRR (Internal Rate of Return) consider the time value of money and uses discounted cash flows, which means the future cash flows are adjusted to reflect their present value by factoring in the cost of capital or the required rate of return. This is done to ensure that the investment's profitability is calculated accurately, taking into account the time value of money. Thus, option D is the correct answer. Option A is incorrect as these methods use compound interest calculations, not simple interest. Option B is incorrect as these methods use cash flows, not net income. Option C is incorrect as these methods focus on the investment's overall profitability rather than the time taken to recover the initial investment.

Which of the Following Is True of Discounted Cash Flow