TRUE OR FALSE, The present value of a stream of cash flows is what that stream is worth in today's dollars.
Understand the Problem
The question is a true/false statement about the concept of present value in finance. It asks whether the present value of a stream of cash flows represents the current worth (in today's dollars) of that stream. Understanding present value is crucial in investment decisions and financial planning.
Answer
True
True. The present value of a stream of cash flows represents the current worth of those future cash flows, discounted to reflect the time value of money.
Answer for screen readers
True. The present value of a stream of cash flows represents the current worth of those future cash flows, discounted to reflect the time value of money.
More Information
The present value is calculated by discounting future cash flows, which considers factors like interest rates and the time value of money. This contrasts with future value, which estimates the worth of an asset at a specific date in the future based on an assumed rate of growth.
Tips
A common mistake is not considering the time value of money when evaluating cash flows from different periods. Always discount future cash flows to their present value to make accurate comparisons and investment decisions.
Sources
- TRUE OR FALSE. - Brainscape - brainscape.com
- Present Value (PV) vs. Net Present Value (NPV) - Investopedia - investopedia.com
- Understanding the Time Value of Money - Investopedia - investopedia.com
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