Discounted cash flow analysis uses cash flows, not the revenues and expenses computed using accrual accounting.

Question

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Discounted cash flow (DCF) analysis focuses on cash flows rather than revenues and expenses, which are influenced by accrual accounting principles. It considers the actual cash expected to be received or paid out, discounting future cash flows to their present value to assess an investment's attractiveness.

Discounted Cash Flow Analysis Uses Cash Flows, Not the Revenues