The appropriate discount rate that analysts use in computing the present value of future cash flows is comprised of which of the following?

Question

Quizplus · Accepted Answer

The appropriate discount rate used in computing the present value of future cash flows includes all of the factors listed in the options. Inflation is taken into account to ensure that the future cash flows are adjusted to reflect the purchasing power of the currency at the time of calculation. A risk factor is used to reflect the uncertainty associated with the project and the potential for losses. Finally, the pure rate of interest represents the return that investors require to invest their capital. Therefore, all of these factors are important in determining the appropriate discount rate to use in the calculation of the present value of future cash flows.

The Appropriate Discount Rate That Analysts Use in Computing the Present