Dollar amounts received at different points in time cannot be compared in absolute terms.

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BlackTom AI · Accepted Answer

The question asks whether dollar amounts received at different points in time cannot be compared in absolute terms, and offers True/False options.
Option 1: True. This claim is not accurate. In finance and economics, we commonly compare cash flows across time by accounting for the time value of money. Techniques such as calculating present value (PV) or future value (FV) allow us to translate dollars received at different times into a common reference point, using a discount rate or interest rate. Inflation, opportunity cost, and risk also affect purchasing power, so simply comparing nominal amounts across time ignores these factors.
Option 2: False. This statement is incorrect because, in reality, one can compare dollar amounts across time by adjusting for the time value of money. Methods like discounting future cash flows to present value or compounding to a future value provide a consistent basis for comparison. When you take into account the discount rate, you can determine whether a later amount is worth more or less than an earlier amount in today’s terms. 
In sum, the assertion in Option 1 wrongly implies that time-based cash flows have an inherent, absolute comparability without adjustment, whereas Option 2 correctly indicates that such comparisons are possible and commonly performed when adjusting for time value and other factors.

2025Spring-FIN2000-06 OPTIONAL | Practice Quiz for Topic 1 Time Value of Money

Dollar amounts received at different points in time cannot be compared in absolute terms.

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