Explain Why the Cash Flows (Profits Minus Costs)for a Project

question 31

Essay

Explain why the cash flows (profits minus costs)for a project that are expected to continue for 20 years need to be discounted? Why not simply use the amounts as they are? Would it make a difference if 80 percent of the profits came in during the first 5 years?

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Definitions:

Income Statement

A financial report that shows an organization’s profitability over a period of time—month, quarter, or year.

Financial Statements

Formal records of the financial activities and condition of a business, person, or other entity, often including the balance sheet, income statement, and cash flow statement.

Potential Investors

Individuals or entities that have the capability to invest capital in a project or company but have not yet committed to the investment.