The process of converting future cash flows to what its present value is:
A) time value of money.
B) discounting.
C) compounding.
D) none of the above.

Question

Quizplus · Accepted Answer

The process of converting future cash flows to its present value is known as discounting. This is because we discount the future cash flows to adjust for the time value of money, which is the concept that money today is worth more than the same amount of money in the future. Therefore, option B, discounting, is the correct answer. Option A, time value of money, is a related concept that describes the fact that money today is worth more than the same amount of money in the future, but it does not answer the question specifically. Option C, compounding, is the opposite process of discounting and involves calculating the future value of money, which is not relevant to the question. Option D is not a correct answer as one of the previous options must be correct.

The Process of Converting Future Cash Flows to What Its