Question

An increase in the discount rate used in DCF analysis of a project penalizes the cash flows from its later years more than those from its early years.

True

False

Answer 1

Hello Sir/ Mam

YOUR REQUIRED ANSWER IS TRUE.

We discount the cashflows as per the receipt year. Earlier cashflows are discounted less and later cashflows are discounted more. The more later the cashflow, the more discounting is required. Hence, it is justified that increase in discount rate used in DCF analysis of a project penalizes cashflows from its later years more than those from its early years.

I hope this solves your doubt.

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