Question

Most discounted cash flow valuations involve using cash flows from an:_________
a. historical period, an explicit forecast period, and a terminal value
b. historical period and a terminal value
c. historical period and an explicit forecast period
d. explicit forecast period and a terminal value

Answer 1

Answer:

d. explicit forecast period and a terminal value

Explanation:

The concept involves giving the current values to the expected future cash flows of a project. Discounted cash flows seek to assign a present value to the projected future income of a company. The discount cash flow techniques use an appropriate discount rate in evaluating forecasted revenues.

Discounted cash flow valuation methods are used in capital budgeting. They are decision-making tools that help managers and shareholders determine whether to invest in a project or not. Discounted future revenues communicate the profitability potential of a project.