When calculating the net present value of future cash flows, dollars that are received in earlier years are worth more than dollars received in later years.

Question

Quizplus · Accepted Answer

This is because earlier dollars can be invested and earn a return over time, whereas dollars received in later years have less time to earn a return. Additionally, there is a time value of money that considers the fact that money is worth more in the present than in the future, due to factors such as inflation and uncertainty.

When Calculating the Net Present Value of Future Cash Flows