Which of the following is true of discounted cash flow methods like NPV and IRR?

Question

Quizplus · Accepted Answer

Discounted cash flow methods like NPV (Net Present Value) and IRR (Internal Rate of Return) consider the time value of money by discounting expected cash flows back to their present value. This is done by using a given cost of capital or discount rate. It helps in analyzing whether an investment is worth considering or not based on the present value of its future cash flows. Option A is incorrect because DCF methods do not use simple interest calculations. Option C is incorrect because DCF methods use cash flows, not net profits. Option D is incorrect because DCF methods do not focus on the payback period.

Which of the Following Is True of Discounted Cash Flow