Discounted cash flow methods typically ________.
A) use simple interest calculations
B) assume that cash flows will be reinvested when received
C) focus on the payback period
D) comply with the requirements of GAAP

Question

Quizplus · Accepted Answer

Discounted cash flow methods assume that cash flows will be reinvested when received, which allows for compound interest to be factored into the calculations. This is a key component of the methodology and distinguishes it from simple interest calculations. Focusing on the payback period is not a primary concern of discounted cash flow methods, and compliance with GAAP is important but not a defining characteristic of the methodology.

Discounted Cash Flow Methods Typically ________