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The idea that all cash flows happen at the end of a period is one. Another is the prompt reinvestment of all cash inflows at a rate of return equal to the discount rate.
What is capital budgeting?
A business uses capital budgeting to decide which planned fixed asset purchases it should approve and which it should reject. Each proposed fixed asset investment is given a quantitative assessment through this procedure, providing a sound foundation on which to base a decision. In corporate finance, capital budgeting and investment evaluation refer to the planning process used to assess whether a business should make long-term investments in new or replacement machinery.
The term "discounted cash flow" (DCF) refers to a method of valuation that calculates an investment's value based on its anticipated future cash flows. Using estimates of how much money an investment will make in the future, DCF analysis seeks to evaluate the value of an investment today.
The idea that all cash flows happen at the end of a period is one. Another is the prompt reinvestment of all cash inflows at a rate of return equal to the discount rate.
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