Consider the following items of information:
I. The target recovery period.
II. The discount rate.
III. The timing (i.e., year) of a cash flow.
Which of the above items would be needed to calculate the present value of a cash flow?
A) I only.
B) II only.
C) I and II.
D) II and III.
E) I, II, and III.

Question

Quizplus · Accepted Answer

To calculate the present value of a cash flow, you need the discount rate (to discount future cash flows back to their present value) and the timing of the cash flow (to know how far in the future the cash flow occurs, which affects how it's discounted). The target recovery period is not directly used in present value calculations.

Consider the Following Items of Information