Discounted cash flow (DCF) is an evaluation process used to determine the investment value on its future cash flows. It is used to estimate the current company’s value and project how much money a firm will produce in the future.
It analysis the existing value of expected future cash flows using a discount rate. The present estimation of value is then used to determine a potential investment. Suppose, the DFC value calculation is high than the contemporary investment cost, then the investment should be considered.
Given below are important MCQs on Discounted cash flow to analyze your understanding of the topic. The answers are also given for your reference.
Discounted cash flow MCQs
1. Which theory describes money received in the current time it has more worth than money received in future
A) Cash value of money
B) Time value of money
C) Storage value of money
D) Lead value of money
Answer: B
2. A project assumed monetary gain or loss by discounting entire cash inflows and outflows by utilising the necessary rate of return is listed as
A) Net recorded cash value
B) Net discounted value
C) Net future value
D) Net present value
Answer: D
3. As per the net present value, any projects to be acceptable should have a
A) Positive net present value
B) Zero net present value
C) Negative net present value
D) Both A and B
Answer: D
4. The cash flows method, utilized by the internal rate of return and net present value method are
A) Future cash flows
B) Lean cash flows
C) Discounted cash flows
D) Vertical cash flows
Answer: C
5. Which method in a capital budgeting is based on the discounted cash flow?
A) Net equity budgeting method
B) Net capital budgeting method
C) Net future value method
D) Net present value method
Answer: D
6. Cash flows are a project’s revenue and are indicated by
A) Positive numbers
B) Negative numbers
C) Relative number
D) Hurdle number
Answer: A
7. In which payback period a due cash flows are discounted with the cost of capital of the project is categorised as
A) Discounted project cost
B) Discounted cash flows
C) Discounted rate of return
D) Discounted payback period
Answer: A
8. Which of the option is not a part of the three primary procedure of firm valuation?
A) Market Share
B) Balance sheet
C) Income or earnings
D) Discounted Cashflow
Answer: A
9. Internal rate of return is
A) The rate at which discounted cash inflow is equal to the discounted cash outflow
B) The rate at which discounted cash inflow is less than discounted cash outflow
C) The rate at which discounted cash inflow is more than discounted cash outflow
D) None of the above
Answer: A
10. Which cash flow is accessible for a firm’s investors?
A) Free cash flow
B) Investing cash
C) Intrinsic stock
D) Extrinsic stock
Answer: A
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