Small businesses make less use of DCF capital budgeting techniques than large businesses. This may reflect a lack of knowledge on the part of small firms' managers, but it may also reflect a rational conclusion that the costs of using DCF analysis outweigh the benefits of these methods for very small firms.

A. True

B. False

Question

Business

Alfredo Camacho

12 April, 12:14

Small businesses make less use of DCF capital budgeting techniques than large businesses. This may reflect a lack of knowledge on the part of small firms' managers, but it may also reflect a rational conclusion that the costs of using DCF analysis outweigh the benefits of these methods for very small firms.

A. True

B. False

+3

Answers (1)

Know the Answer?

Kira Humphrey · Answer 1

The correct answer is True.

Explanation:

The available cash flow model considers that the value of the going concern will be given by the luxury of free available cash that is expected to be generated in the future, discounted at a rate that reflects the risks of the business.

The discounted cash flow analysis revolves around two variables: expected future cash flows and the discount rate. Furthermore, it is noted that the discount rate reflects the inherent risk of investing in a business. Therefore, investors require high returns when the risks are great.