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The present value of a cash flow allows an investor to assess?


A) the present value of a future cash flow.
B) the value of a stream of cash flows in terms of the best and most certain
alternative.
C) what equivalent present payment would be equally acceptable in lieu of the
investment under consideration.
D) A and B.
E) A, B, and C.

538 day(s) ago

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Answers (3)

BruinCPA 		I agree- it has to be D.

The reason for calulating the NPV of a stream of cash flows is to ensure thay you will achieve payback of the initial investment within a certain period of time. The discount factor is, of course, always an estimate as we do not know where inflation will be in a few years time.

The NPV can then be used in conjuction with the IRR method (Internal Rate of Retun) to fully assess the project along with other alternatives. Neither method, by itself is of much use!

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alohachris 		D.

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vinwubulldogs 		let that be D.

you are trying to make a decision about whether or not the future cash inflows will be enough to cover you initial investment in say X number of years.

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