Under typical application of using discounted cash flow analysis to calculate present values,estimated cash flows are:
A) discounted at the published market rate.
B) discounted at a risk-adjusted rate.
C) allocated across divisions of the firm.
D) optimized at the neutral rate.

Question

Quizplus · Accepted Answer

Estimated cash flows are discounted at a risk-adjusted rate in order to account for the level of risk associated with the investment. This accounts for the time value of money and the risk associated with the investment, resulting in a more accurate present value calculation.

Under Typical Application of Using Discounted Cash Flow Analysis to Calculate