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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.
What else can I help you with?
When the present value of the cash inflows exceeds the initial cost of a project then the project should be?
When the present value of the cash inflows exceeds the initial cost of a project, the project should be accepted. This indicates that the project is expected to generate a positive net present value (NPV), suggesting it will add value to the organization. Accepting such a project aligns with maximizing shareholder wealth and achieving financial growth.
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
Is the irr the same as the discount rate?
No, the Internal Rate of Return (IRR) is not the same as the discount rate. The IRR is a metric used to evaluate the profitability of an investment, while the discount rate is the rate used to discount future cash flows to their present value.
If the compounding rate becomes lower and lower the future value of inflows approaches .?
the present value of the inflows
As the discount rate becomes higher the present value of inflows approaches?
As the discount rate increases, the present value of future cash inflows decreases. This is because higher discount rates reduce the value of future cash flows, reflecting the opportunity cost of capital and the time value of money. Ultimately, with a sufficiently high discount rate, the present value of future inflows can approach zero, indicating that those future cash inflows are less valuable in today's terms.
As the compounding rate becomes lower and lower the future value of inflows approaches?
As the compounding rate decreases, the future value of inflows approaches the present value of those inflows. This occurs because lower compounding rates result in less growth over time, diminishing the effect of interest accumulation. Ultimately, if the compounding rate were to approach zero, the future value would converge to the total sum of the initial inflows without any interest or growth.
Why would npv increase with an increase in the discount rate?
An increase in the discount rate would decrease the value of future cash flows in the Net Present Value (NPV) calculation, making future cash flows worth less in today's terms. This would lower the overall NPV of a project since the present value of future cash inflows is reduced more than the initial investment.
What is the present perfect tense of approaches?
Have/has approached. I/we/you/they have approached, he/she has approached.
When the present value of the cash inflows exceeds the initial cost of a project then the project should be?
When the present value of the cash inflows exceeds the initial cost of a project, the project should be accepted. This indicates that the project is expected to generate a positive net present value (NPV), suggesting it will add value to the organization. Accepting such a project aligns with maximizing shareholder wealth and achieving financial growth.
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%
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.
To increase a given present value the discount rate should be adjusted?
To increase a given present value, you would generally lower the discount rate. This is because a lower discount rate reduces the impact of future cash flows, making the present value higher. Conversely, increasing the discount rate would decrease the present value.
Does decreasing a discount rate lower the present value?
No, decreasing the discount rate actually increases the present value of future cash flows. The discount rate reflects the time value of money, and when it is lowered, future cash flows are discounted less heavily, resulting in a higher present value. Conversely, increasing the discount rate would decrease the present value.
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.
How does discount rate affect net present value?
The discount rate directly influences the net present value (NPV) by determining the present value of future cash flows. A higher discount rate reduces the present value of those cash flows, leading to a lower NPV, while a lower discount rate increases the present value and thus the NPV. If the discount rate exceeds the internal rate of return of a project, the NPV may become negative, indicating that the project may not be viable. Conversely, a lower discount rate can make an investment more attractive by increasing its NPV.
