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What is normally used as the discount rate in the net present value method?
Wiki User
∙ 14y ago
the net present value as determined by normal discount rate is 10%
Wiki User
∙ 14y ago
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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.
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
What is a fisher rate?
Exchange of benefits in applying the net present value method
What is the meaning of present value?
Present Value means the current value of future cash flows discounted at the appropriate discount rate. Say I gave you a document promising to give the bearer $100,000 on a particular date. If the date was tomorrow, you could sell the document today for close to $100,000. If the date was 100 years from now, the document is close to worthless. On the settlement date, it's worth $100,000. The "present value" is the value right now of a promise to pay in the future. Usually you calculate the present value based on the period of time and an interest rate, also known as the discount rate.
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 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 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)
Does present values have value adding up property?
Net present value method has value adding-up property
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
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 present value analysis?
Present value analysis is a financial technique used to evaluate the value of future cash flows by discounting them back to their current value. It takes into account the time value of money, allowing for better decision-making by comparing the present value of costs and benefits. The goal is to determine whether an investment or project is worth pursuing based on its potential return.
What method of evaluating capital investment proposals uses the concept of present value to compute rate of return?
The method that uses the concept of present value to compute rate of return is called the Net Present Value (NPV) method. In this method, the cash inflows and outflows of a capital investment proposal are discounted to their present value using a discount rate. The NPV is then calculated by subtracting the initial investment from the present value of the cash flows. A positive NPV indicates a profitable investment, while a negative NPV suggests an unprofitable investment.
To increase a given present value the discount rate should be adjusted?
highest
What is the difference between the net present value and the discounted cash flow method?
cash method is when you get cash, method is when u give it
When Calculating Present value is the interest rate higher or lower if the present value amount is smaller?
Well normally it depends on how much people buy them.
