Which method calculates the current worth of future cash flows?

The method that calculates the current worth of future cash flows is known as Discounted Cash Flow (DCF). This approach involves determining the present value of expected future cash flows generated by an investment or project. By applying a discount rate, DCF accounts for the time value of money, acknowledging that money available now is worth more than the same amount in the future due to its potential earning capacity. The process typically involves projecting future cash flows from the investment and discounting them back to their present value to make informed financial decisions.

In contrast, the other options do not focus specifically on the present value of future cash flows. Net cash flow simply refers to the difference between cash inflows and outflows during a specified period without accounting for the time value of money. The average rate of return calculates the average return on an investment over a time frame, treating each period equally and not considering future cash flows’ present value. Return on investment (ROI) measures the return relative to the cost of an investment but does not provide insight into the timing and worth of future cash flows. Therefore, Discounted Cash Flow is the appropriate method for evaluating the current worth of future cash flows.