Which of the following statements regarding the assumptions underlying discounted cash flow analysis is/are true?
i.All cash flows are treated as though they occur at year-end
ii.Cash flows associated with the investment project are treated as if they are known with certainty.
iii.The discount rate is always the same as the average cost of capital.

Question

Quizplus · Accepted Answer

i is true as DCF analysis assumes all cash flows occur at year-end to simplify the calculation.
ii is also assumed in DCF analysis. However, in reality, cash flows are seldom known with certainty.
iii is false as the discount rate is not always the same as the average cost of capital. The discount rate may vary depending on the riskiness of the project.

Which of the Following Statements Regarding the Assumptions Underlying Discounted