PRC-2 · Chapter 5 · Question 30 of 50
What mathematical operation transforms a future expected cash flow into its 'Present Value' equivalent?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Discounting
Explanation
Discounting is the exact reverse mechanism of compounding. It applies a discount factor, such as (1 + i)^-n, to estimate the present day equivalent of a cash flow scheduled to occur in the future.
More Financial Mathematics MCQs
- Q32The 'Internal Rate of Return' (IRR) is formally defined as the discount rate at which:
- Q33Which project evaluation method is purely focusing on the time it takes for a project to recover its initial cash investment, without…
- Q34If a firm has two mutually exclusive projects, A and B, which project should mathematically be chosen if both are profitable?
- Q35What is a 'Profitability Index' (PI) utilized for in project selection?
- Q36What does the first derivative (dy/dx) of a function represent graphically?