Estimating future cash flows and discounting them back to the present is part of which capital budgeting technique?
A)The future value method.
B)The annuity method.
C)The net present value method.
D)The payback method.

Question

Quizplus · Accepted Answer

Estimating future cash flows and discounting them back to the present is a key step in calculating the net present value (NPV) of a project. NPV is a capital budgeting technique that measures the present value of future cash inflows minus the present value of cash outflows. The goal is to determine if the investment will generate positive net cash flows, which means it will add value to the company. The other options (A, B, and D) do not involve this process of estimating future cash flows and discounting them back to the present.

Estimating Future Cash Flows and Discounting Them Back to the Present