When computing a present value,which of the following is TRUE?
A)You should adjust the discount rate to match the time period of the cash flows.
B)You should adjust the future value to match the present value.
C)You should adjust the time period to match the present value.
D)You should adjust the cash flows to match the time period of the discount rate.

Question

Quizplus · Accepted Answer

To compute the present value of cash flows, it is important to adjust the discount rate to match the time period of the cash flows. This is because the discount rate represents the opportunity cost of capital over a specific time period. Therefore, the discount rate used for a long-term cash flow should be different from that used for a short-term cash flow. Adjusting the discount rate helps to ensure that the present value calculation accurately reflects the time value of money.

When Computing a Present Value,which of the Following Is TRUE