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 and IRR assume that cash flows will be reinvested when received in order to calculate the present value of future cash flows. Option A is incorrect as discounted cash flow methods use compound interest calculations. Option B is incorrect as discounted cash flow methods focus on the present value of all cash flows, not just the payback period. Option C is incorrect as while discounted cash flow methods are important in financial reporting, they are not necessarily required by GAAP.

Which of the Following Is True of Discounted Cash Flow