Question

Which of the following statements is FALSE? A. The process of moving a value or cash flow backward in time is known as discounting. B. The process of moving a value or cash flow forward in time is known as compounding. C. If you want to compare or combine cash flows that occur at different points in time, you first need to convert the cash flows into the same units or move them to the same point in time. D. Not every stream of cash flows can be represented on a timeline.

Answer 1

Each and every stream of cash flows can be represented on a timeline. Accordingly option D i.e Not every stream of cash flows can be represented on a timeline is false.

The process of moving a value or cash flow backward in time is known as discounting and the process of moving a value or cash flow forward in time is known as compounding. If you want to compare or combine cash flows that occur at different points in time,we generally discount all the future cash flows and convert them into present value and then a decision is to be made.