How do discounted cash flow (DCF) methods analyze investment decisions? What two types of factors affect the role of cost analysis in forecasting present and future value for decision making? How can...

The discounted cash flow is an application of the time value of money. Principal of discounted cash flow analysis finds the present value of expected future cash inflow using a discounted rate. If the value calculated through discounted cash flow is higher than the current cost of the investment the opportunity should be considered. In order to conduct a discounted cash flow analysis an investor must make estimates about the future cash inflows and ending value of the investment or the other asset. The investor must also determine an appropriate rate of discount for the discounted cash flow model which will vary depending upon the project or investment. In case of two or more projects the project which provides higher present value will be...