Discounted cash flow analysis relies primarily on _________________ in valuing proposed projects.

Question

Quizplus · Accepted Answer

Discounted cash flow analysis calculates the present value of expected future cash flows by discounting them back to their present value using the discount rate or cost of capital. The resulting net present value (NPV) represents the estimated value of the project. Therefore, discounted cash flow analysis relies primarily on net present value in valuing proposed projects. Opportunity costs and discounted wealth effects may be factored into the analysis, but they are not the primary focus. Weighted average cost of capital is used as a component in calculating the discount rate, which is then applied to the estimated future cash flows to arrive at the NPV.

Discounted Cash Flow Analysis Relies Primarily on _________________ in Valuing