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What is normally used as the discount rate in the net present value method?
the net present value as determined by normal discount rate is 10%
As the discount rate becomes higher and higher the present value of inflows approaches what?
As, the present value of future cash flows is determined by the discount rate, so increase or decrease in the discount rate will affect the present value. Discount rate is simply cost or the expense to the company,so in simplest terms, discount rate goes up, cost goes up,so this will lower the present value of cash flows. Assumes a discount rate of 5%,to discount $100 in one years time: Present Value=$100 * 1/(1.05) =$95.24 Ok,as you say,if the discount rate becomes higher,let's say 8%: Present Value=$100 * 1/(1.08) =$92.6 so, the higher the discount rate, the lower the present value.
Is the interest rate and discount rate in present value?
yes they are the same
What is the present value of 500 to be received 10 yrs from today if it is discount at the rate of 6 percent?
What is the present value of 500 to be recieved 10 yrs from today if it is discount at the rate of 6 percent?
Why a high discount rate gives a low present value of a cash flow?
The higher the discount rate, the more time value of money we are tacking out of original amount from the future value
What are the four pieces to an annuity present value?
The four pieces to an annuity present value are: Present value(PV), Cashflow (C), Discount rate (r) and the life of the annuity (t)
To increase a given present value the discount rate should be adjusted?
highest
As the discount rate increases without limit the present value of a future cash flow?
Decreases.... The formula is PV = $1 / (1 + r)t PV = Present Value r = discount rate Because 1/r continues to get smaller as r increases, thus resulting in an exponentially smaller Present Value.
What is a fisher rate?
Exchange of benefits in applying the net present value method
What is the difference between discount factor and discount rate?
Discount factor is the factor determining future cash flow, but multiplying the cash flow to obtain present value. Discount rate is used in calculations to equal the cost of capital.
What variables are required to calculate the present value of a future amount?
The future amount itself and a discount rate.
What is present value analysis?
Present value analysis is the application of an appropriate discount rate to a stream of future cash flows. It allows differing payment streams to be compared.
