Discounting the expected cash flows in valuation process, Financial Management

After determining the expected cash flows and appropriate interest rate, the last step in the valuation process is to find the total PV of all cash flows. The PV of the cash flow depends on the timing of the cash flow, i.e., when we receive the cash flow, and on the interest rated which is used as the discount factor.

Assume, The PV of an expected cash flow to be received n years form now if a discount rate r can be earned on any sum invested today is:

PVn   =   2013_discounting cash flow.png                                                         ...Eq.(1)    

Then the value of the financial instrument is the sum of the PV of all the expected cash flows. Assume that there are M expected cash flows:

         Value of financial instrument = PV1 + PV2 + PV3...PVM                             ...Eq.(2) 

Posted Date: 9/10/2012 5:35:38 AM | Location : United States







Related Discussions:- Discounting the expected cash flows in valuation process, Assignment Help, Ask Question on Discounting the expected cash flows in valuation process, Get Answer, Expert's Help, Discounting the expected cash flows in valuation process Discussions

Write discussion on Discounting the expected cash flows in valuation process
Your posts are moderated
Related Questions
Q. Evaluate of Risk-Adjusted Discount Rate? Illustration: - From the following date state which project is preferable: Year Project A Proj

State the term- Pass Through Certificates (PTCs) Pass through Certificates (PTCs) are debt securities which pass through income from debtors through intermediaries to investors

Advantages and disadvantage of pacipatory style of budgeting

Explain the concepts of Planning the work Determine scope and objective of the audit (to verify assets, to check adequacy of internal controls etc...). Ensuring appropr

Your quantitative analysis will describe the financial strength of you company using the metrics we discussed in class. You may use other measures at your discretion, but the follo

Cyclical Variation By cyclical variations, we refer to the long-term movement of the variable about the trend line. Therefore, does the movement of the actual series about a tr

Explain the adjustments necessary to translate enterprise value to the total present value of common equity. To gain the value of the company's common stock add the value of th

What are the pros and cons of commercial paper relative to bank loans for a company seeking short-term financing? Commercial paper is generally a cheaper source of short-term fin

What are the financial management problems Traditional approach was challenged was that the treatment was built too closely around episodic events, like incorporation, promotio

Assessment of in individual strengths and weaknesses Before finalizing career plan for an individual and placing him on career path, it is necessary to access his strengths and