Question

Discounting cash flows involves

a. discounting only those cash flows that occur at least 10 years in the future.
b. estimating only the cash flows that occur in the first 4 years of a project.
c. multiplying expected future cash flows by the cost of capital.
d. discounting all expected future cash flows to reflect the time value of money.
e. taking the cash discount offered on trade merchandise.

Answer 1

The correct answer is letter "D": discounting all expected future cash flows to reflect the time value of money.

Step-by-step explanation:

Discounting cash flows takes place at any moment given when money is paid at one date but is received at a different point. Discounted cash flows are useful to measure the difference between the present value of money and the receivables that are expected to come at a later stage.