0
As the discount rate becomes higher and higher the present value of inflows approaches what?
Wiki User
∙ 14y ago
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.
Wiki User
∙ 14y ago
Add your answer:
Earn +20 pts
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%
What approaches can be taken in valuing a firm's stock when there is no cash dividen payment?
In valuing a firm with no cash dividend, one approach is to assume that at some point in the future a cash dividend will be paid. You can then take the present value of future cash dividends. A second approach is to take the present value of future earnings as well as a future anticipated stock price. The discount rate applied to future earnings is generally higher than the discount rate applied to future dividends.
Is the interest rate and discount rate in present value?
yes they are the same
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
Difference between present value and net present value?
Present value is the result of discounting future amounts to the present. For example, a cash amount of $10,000 received at the end of 5 years will have a present value of $6,210 if the future amount is discounted at 10% compounded annually.Net present value is the present value of the cash inflows minus the present value of the cash outflows. For example, let's assume that an investment of $5,000 today will result in one cash receipt of $10,000 at the end of 5 years. If the investor requires a 10% annual return compounded annually, the net present value of the investment is $1,210. This is the result of the present value of the cash inflow $6,210 (from above) minus the present value of the $5,000 cash outflow. (Since the $5,000 cash outflow occurred at the present time, its present value is $5,000.)
If the compounding rate becomes lower and lower the future value of inflows approaches .?
the present value of the inflows
Get cash when you need it?
an asset could be valued at the present value of its future inflows
When does a comet became brighter?
A comet becomes brighter as it approaches the sun. It's at that time that the heat from the sun begins to boil the ice present in the comet, and its tail becomes visible as it moves, leaving a trail behind it that scatters light, making it appear brighter.
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%
If you want to find the present value of an investment you should choose the financial function?
You can use the PV function or the NPV function. Present Value is the result of discounting future amounts to the present. Net Present Value is the present value of the cash inflows minus the present value of the cash outflows.
What is the present perfect tense of approaches?
The present perfect tense of "approaches" is "has approached."
What approaches can be taken in valuing a firm's stock when there is no cash dividen payment?
In valuing a firm with no cash dividend, one approach is to assume that at some point in the future a cash dividend will be paid. You can then take the present value of future cash dividends. A second approach is to take the present value of future earnings as well as a future anticipated stock price. The discount rate applied to future earnings is generally higher than the discount rate applied to future dividends.
How do you use be and have in the present tense?
In the present tense, "be" is used to describe a state of being or identity (e.g., I am happy). "Have" is used to indicate possession or ownership (e.g., I have a book). Additionally, "have" is also used as a helping verb in present perfect constructions (e.g., I have finished my homework).
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?
Is the interest rate and discount rate in present value?
yes they are the same
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 is the present tense of become?
(I, We, You, They) become. (He, She, It) becomes.
