What does the expected cash flow approach focus on for present value computations?

The expected cash flow approach focuses on estimating a range of possible cash flows and assigning probabilities to those cash flows when computing present value. This method acknowledges the inherent uncertainty in future cash flows and seeks to provide a more comprehensive view of potential outcomes rather than relying on a single estimation.

By encompassing various possible cash flows and the likelihood of each occurring, the expected cash flow approach allows for a better assessment of value based on a probabilistic distribution of future scenarios. This is particularly useful in cases where cash flows are subject to variability due to fluctuating market conditions or operational factors. Thus, using this approach helps in approximating a more realistic expectation of the cash flows that might be received or incurred over time, leading to a more reliable present value calculation.

In contrast, other options either overly simplify the forecasting by focusing on a single cash flow or do not take into account the probabilities associated with varying cash flow scenarios, which limits their effectiveness in present value assessments. The expected cash flow approach is therefore a more robust method for evaluating financial instruments, investments, or any future obligations that depend on uncertain cash flows.