Cash flows occurring in different periods should not be compared unless:
A)Interest rates are expected to be stable
B)The flows occur no more than one year from each other
C)High rates of interest can be earned on the flows
D)The flows have been discounted to a common date

Question

Quizplus · Accepted Answer

Cash flows occurring in different periods cannot be compared directly unless they have been discounted to a common date using a specified rate of interest. This is because the value of money changes over time due to factors such as inflation and interest rates. Discounting the flows to a common date allows for a more accurate comparison of their present values. Therefore, option D is the correct answer. Options A, B, and C do not address the issue of comparing cash flows occurring in different periods.

Cash Flows Occurring in Different Periods Should Not Be Compared