Under the traditional discounted cash flow approach,
A) the model is best used when cash flows are uncertain.
B) the stream of contracted cash flows is discounted.
C) the risk-free discount rate is used.
D) the method is best used when cash flows are variable.

Question

Quizplus · Accepted Answer

The traditional discounted cash flow approach involves discounting the stream of contracted cash flows, taking into account the time value of money. This method is commonly used to value assets or projects that have predictable future cash flows. It is important to use an appropriate discount rate that reflects the risk of the investment. Therefore, the risk-free discount rate is not always used. This method is less effective when cash flows are uncertain or variable.

Under the Traditional Discounted Cash Flow Approach