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Can a company that provides services use a discounted cash flow model for investments? Yes; a...

Question:

Can a company that provides services use a discounted cash flow model for investments?

Yes; a service company can use these models to make capital investment decisions

No; not unless the future value of the investment is known

Yes; only if they are a large size service company

No; a service company cannot use these models to make capital investments decisions

Discounted Cash Flow Model

Discounted cash flow model is a method that takes into consideration the time value of money and how it affects the cash flows. Discounted cash flow method is used to determine if an investment is beneficial to a company or not.

Answer and Explanation:

Answer:

  • Yes; a service company can use these models to make capital investment decisions


Explanation:

  • Discounted cash flow model can be used for capital investment decisions of a company. The future cash flow from the investment must be known in order to use this kind of method as it is the primary variable needed.
  • Capital investment decision is a general management process and not industry specific so a service company can utilize the method as it deem fit.

Learn more about this topic:

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Discounted Cash Flow, Net Present Value & Time Value of Money

from Accounting 102: Intro to Managerial Accounting

Chapter 8 / Lesson 4
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