Question

The process of valuing an investment by determining the present value of its future cash flows is called (the):

a)Constant dividend growth model.
b)Discounted cash flow valuation.
c)Average accounting valuation.
d)Expected earnings model.
e)Capital Asset Pricing Model.

Answer 1

Discounted cash flow valuation is the process of valuing an investment by determining the present value of its future cash flows. It considers potential capital gains and dividends to determine the fair value of the investment.

Step-by-step explanation:

The process of valuing an investment by determining the present value of its future cash flows is called Discounted cash flow valuation. This method takes into account both potential capital gains from the future sale of the investment and dividends that might be paid. By discounting the future cash flows to the present using an appropriate interest rate, investors can determine the fair value of an investment.