Question

Difference between discounting and non discounting techniques of capital budgeting

Answer 1

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Answer 2

Time value of money is a vital concept in investments that takes into account the reduction in real value of funds due to the effects of inflation. The key difference between discounted and undiscounted cash flows is that discounted cash flows are cash flows adjusted to incorporate the time value of moneywhereas undiscounted cash flows are not adjusted to incorporate the time value of money. The outcome of an evaluation of an investment project using these two methods will be significantly different, thus it is important to clearly distinguish between the two.