Computing the Present Value of a Future Cash Flow to Determine

question 5

Multiple Choice

Computing the present value of a future cash flow to determine what that cash flow is worth today is called:

• A)compounding.
• B)factoring.
• C)time valuation.
• D)simple cash flow valuation.
• E)discounted cash flow valuation.

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Definitions:

Board of Directors

A group of individuals elected by shareholders to oversee the management and make major decisions for a corporation.

Legal Dividend

A dividend that a company is legally allowed to distribute as determined by its net income or retained earnings.

Noncumulative Preferred Stock

A type of preferred stock that does not accumulate unpaid dividends; if a dividend is skipped, it is not required to be paid later.

Retained Earnings

The portion of net earnings not distributed as dividends to shareholders but reinvested in the business or kept as a reserve.