To use the Discounted Cash Flow method, the future cash flows have to be forecasted. To determine these estimates management will :
A)Make justified assumptions about income, expenses, profit and all other significant figures
B)Use a benchmarking approach to align the firm's cash flows with its rivals' cash flows
C)Use accounting data and directly extrapolate from the past the future cash flows
D)Reach consensus by discussion with a group of external experts such as stockbrokers

Question

Quizplus · Accepted Answer

The Discounted Cash Flow method requires management to make reasoned projections of future cash flows by making assumptions about income, expenses, profit and other significant factors. These estimates must be reasonable and based on informed judgment to be considered legitimate. Therefore, options B, C and D are not proper methods of forecasting cash flows for the Discounted Cash Flow method.

To Use the Discounted Cash Flow Method, the Future Cash