Discounting cash flows involves:
A) reducing cash flows that occur beyond 10 years in the future.
B) discounting expected cash flows beyond a certain number of years in the future, which varies with the riskiness of the project.
C) reducing expected cash flows to achieve certainty equivalence.
D) reducing the value of future cash flows to reflect the time value of money.
E) taking the cash discount offered on trade merchandise.

Question

Quizplus · Accepted Answer

Discounting cash flows is a financial analysis technique used to determine the present value of future cash flows. This process accounts for the time value of money, recognizing that a dollar received in the future is worth less than a dollar received today due to the potential earning capacity of money.

Discounting Cash Flows Involves