Which term describes a value calculation that estimates an investment's future cash flows to determine its potential interest rate?

The term that best describes a value calculation estimating an investment's future cash flows to determine its potential interest rate is Internal Rate of Return (IRR). IRR represents the discount rate that makes the net present value of an investment's cash flows equal to zero. Essentially, it provides a way to evaluate the profitability of potential investments by calculating the expected rate of return based on future cash flows.

The IRR is particularly useful in decision-making processes because it allows investors or managers to compare the attractiveness of various investments. If the IRR exceeds the required rate of return or the cost of capital, the investment is generally considered viable. This aligns with the fundamental decision-making principle regarding investment opportunities, where the goal is to maximize returns.

Other concepts such as Net Present Value, Return on Investment, and the Capital Asset Pricing Model serve different functions in financial analysis. While Net Present Value calculates the total value of future cash flows discounted back to their present value, it does not directly estimate an interest rate. Return on Investment measures the efficiency of an investment, providing a percentage back compared to its cost but not specifically dealing with cash flow interest rates. The Capital Asset Pricing Model is focused on understanding the relationship between systematic risk and expected return, primarily used in assessing equity investments