Discounted cash flow methods for capital budgeting focus on ________.
A) cash inflows and required rate of return
B) operating income and required rate of return
C) operating income and cost of capital
D) working capital and cost of capital

Question

Quizplus · Accepted Answer

Discounted cash flow methods, such as net present value and internal rate of return, focus on estimating the future cash inflows associated with a capital investment project and discounting them back to their present value using a required rate of return. Therefore, option A is the best choice. Option B is incorrect because operating income alone is not sufficient for evaluating the potential profitability of a project. Option C is incorrect because cost of capital is used in the discounting process, but not as a focus of the analysis. Option D is incorrect because working capital is not a primary consideration in capital budgeting decisions.

Discounted Cash Flow Methods for Capital Budgeting Focus on ________