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In the context of capital budgeting, what is meant by the word "discounting"?

A. Using the lowest rate among a set of reasonable possibilities when choosing an interest rate for analysis.
B. Using the highest rate among a set of reasonable possibilities when choosing an interest rate for analysis.
C. Mathematically adjusting all future cash flows to their equivalent amounts as of today.
D. Ignoring cash flow forecasts based on estimates rather than on hard data.



Answer :

GinnyAnswer

Final answer:

Discounting in capital budgeting involves adjusting future cash flows to their present value based on the chosen discount rate.


Explanation:

Discounting in the context of capital budgeting refers to mathematically adjusting all future cash flows to their equivalent amounts as of today. It involves translating the value of future consumption into current-day dollars based on the discount rate used. This discount rate reflects the interest rate or the value one places on current versus future consumption.


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