Multiple choice

Which of the following is an assumption of terminal value method?

  1. Each annual cash inflow is received at the end of year and is invested in another asset at a certain rate of return.

  2. Discounting rate is derived from the aggregate of the present values of all future cash inflows.

  3. Present value of all cash inflows from investments at different periods is determined.

  4. Rate of return of the annual net profit on investment is calculated.

  5. Time period of the recovery of cost of capital project by its own cash earnings is calculated.
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A Correct answer
Explanation

Money is accumulated and discounted at the discount factor of last year.

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