When using discounted cash flow analysis, what is re-evaluated?

Discounted cash flow (DCF) analysis involves evaluating the present value of future cash flows expected from an investment or project. In this process, all expected future cash flows are adjusted to reflect their present-day equivalent, which accounts for the time value of money. This means that future costs and revenues are assessed to determine what they would be worth today if invested or received immediately, thereby providing a clearer picture of profitability and feasibility.

This approach is fundamental to making informed financial decisions, as it considers the potential for interest and inflation over time. For example, a dollar received in the future is worth less than a dollar received today due to the opportunity cost of capital. Consequently, option B is the most accurate description of what is re-evaluated when performing discounted cash flow analysis.