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

A callable bond is similar to an Option-free bond with a call option from the bondholder. It can be thought of as the sale of a call option by the investor


Types of Treasury Bills Treasury bills are issued at various maturities, generally up to one year. Thus, they are useful in managing short-term liquidity. At present, the GOI (

On Completion of her introductory finance course, Kieran was so pleased with the amount of useful and interesting knowledge she gained that she convinced her parents, who were weal

What is accumulated depreciation? Depreciation is the allocation of an initial cost over time of asset. Whereas the term accumulated depreciation is the total of all the deprec

Required Rate of Return (R i )  The required rate of return (Ri) is the minimum rate of return that a project must generate if it has to receive funds.  It’s thus the opportun

Describe the general pattern of cash flows from a bond with a positive coupon rate. Cash flows as of a bond with a positive coupon rate consist of periodic interest payments an

A proposal to extend the ABC Gas Company Ltd's gas distribution network to the NOIDA industrial cluster, about 40 km east of Delhi, at distance of about 20 kms from the ABC's exist

Financial analysis The purpose of financial statements is to provide information to all the users of these accounts to assist them in their decision-making. It has to be concer