Tag: meaning and objectives of cash flow statement

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Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

If there is no inflation during a period, then the money cashflow would be equal to _____________.

  1. Present value

  2. Real cash flow

  3. Real cash flow + present value

  4. Real cash flow present value
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Inflation is defined as the increase in prices of general goods and services. If there is no inflation during a particular period, there will be no impact on cash flows. The money cash flow must be equal to real cash flow.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

The Real Cashflows must be discounted to get the present value 'M' at a rate equal to ________________.

  1. Money Discount Rate

  2. Inflation Rate

  3. Real Discount Rate

  4. Risk free rate of interest
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

To calculate the present value of real cash flows, one must use a real discount rate, which excludes the effects of inflation. Using a money (nominal) discount rate would be appropriate only for nominal cash flows.