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Which of the following discounts future cash flows to their present value at the expected rate of return, and compares t...

Which of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the initial investment?

A.Internal rate of return (IRR) method

B.Discounted cash flow model

C.Net present value (NPV)

D.Future value method

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Answer #1

Solution: The correct answer is option c)net present value(NPV)

Explanation: Option a)internal rate of return method facilitates in determining benefit or gain from an investment by allocating interest rate where net cash flows present value equals zero. So, does not hold true. Option b)discounted cash flow model facilitates in determining organization's present value by projecting its future revenue earning capacity. So, does not hold true. Option c)net present value(NPV) facilitates in determining calculating the difference between present value of an activity to that of its future expected value. So, holds true for given question. Option d)future value method helps an organization as the name suggests in determining future value from current/present statistics of rate of growth. So, does not hold true.

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