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:

PV_n   =                                                            ...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...PV_M                             ...Eq.(2) 

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

Ask an Expert

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

Write your message here..

Related Questions

Causes of risks, Q. Causes of Risks 1) Wrong decision of what to invest... Q. Causes of Risks 1) Wrong decision of what to invest in. 2) Wrong timing of investments. 3) Nature of instruments invested such as shares or bonds, chit funds, benefit

Determine about the strategic benchmarking, Determine about the Strategic B... Determine about the Strategic Benchmarking Comparison in terms of an organisations 'strategic choices' made to the most successful market leader for example review organisat

Define the straight fixed-rate bond, Define the Straight fixed-rate bond ... Define the Straight fixed-rate bond Straight fixed-rate bond issues comprise a designated maturity date at which the principal of the bond issue is guaranteed to be repaid.  Th

Explain continuous compounding benefit an investor, How does continuous com... How does continuous compounding benefit an investor? The influence of increasing the number of compounding periods every year is to increase the future value of the investment. Th

Please identify the largest potential threat, Using Southwest Airlines as a... Using Southwest Airlines as an example, please identify the largest potential threat, the strategy employed, and what types of capital budgeting projects would be used to operation

Return enhancement on investment, Return Enhancement can be explained... Return Enhancement can be explained using following heads: Use of a Valuation Model: An investor having access to a bond valuation model can bu

Rationale for mergers-product advantages, Product Advantages: A firm th... Product Advantages: A firm that has developed a reputation for superior products in the domestic market may find acceptance from the foreign consumers as well. Hence, such firm

Prepare an investment plan proposal, Yanni and Joanna need some investment ... Yanni and Joanna need some investment advice. Joanna has sold $660,000 worth of Woolworths Limited (WOW) shares that she inherited late last financial year. She has $616,000 remain

Describe market value weights, Q. Describe Market Value Weights? Market... Q. Describe Market Value Weights? Market Value Weights: - As per market worth scheme of weighting the weights to dissimilar sources of finance are assigned on the basis of thei

Accounting change, Q. Accounting Change? Accounting Change - Change i... Q. Accounting Change? Accounting Change - Change in (1) an accounting principle (2) an accounting estimate or (3)the reporting entity which necessitates DISCLOSURE and explan