Cash flows occurring in different periods should not be compared unless:
A) interest rates are expected to be stable.
B) the flows occur no more than one year from each other.
C) high rates of interest can be earned on the flows.
D) the flows have been discounted to a common date.

Question

Quizplus · Accepted Answer

Cash flows occurring in different periods should be discounted to a common date before comparison to account for the time value of money. This ensures that the value of the cash flows is compared on an equal basis, and takes into consideration any interest that could have been earned on the cash flows if they had been received earlier. A, B, and C are not relevant to comparing cash flows occurring in different periods.

Cash Flows Occurring in Different Periods Should Not Be Compared