Question:
Does anyone know how the relevance of opportunity costs and the irrelevance of sunk costs, as well as, how companies value product costs, inventories and perform profit analysis on a full cost allocation basis, including allocation of fixed costs, overheads, depreciation, all relates to Discounted Cash-Flows analysis?
Answers:
In finance, the discounted cash flow (or DCF) approach describes a method to value a project or an entire company using the concepts of the time value of money. All future cash flows are estimated and discounted to give them a present value. The discount rate used is generally the appropriate cost of capital, and incorporates judgments of the uncertainty (riskiness) of the future cash flows.
Discounted cash flow analysis is widely used in investment finance, real estate development, and corporate financial management.
Your answer is about 6 chapters long in an accounting text book.
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