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
List a few types of non-price rationing systems. (a) Queuing. (b) Favored customers. (c) Rationing coupons.

7. Bill Peters is the investment officer of a $60 million pension fund. He has become concerned about the big price swings that have occurred lately in the fund’s fixed income sec

Q. Criticism of Wealth Maximization? i) The objective of wealth maximization is not, necessarily, socially desirable. ii) There is some controversy whether the objective of

Part 1: Contingency plan Create contingency plans for the following scenarios: > One of your highly qualified consultants has given three months notice and is planning to move to a

Explain the significance of the term additional funds needed . When the pro forma balance sheet is finished, total liabilities and total assets and equity will rarely match.

What are the factors of debt securities A legal agreement, known as a trust deed, is drawn between security holders and company issuing the debt securities. Every security issu

Income Statement A formal statement of the parts used in determining an organization net income that is called profit and loss statement. The several categories reported

What are the differences between life insurance and property and causality insurance? Life insurance prevents against death, retirement and illness. Companies obtain premiums b

Discuss the relationship between financial decision making and risk and return. Would all financial managers view risk-return tradeoffs similarly

Value of Conversion Benefits: Having seen the measure used to analyze the convertible bonds, let us now examine the merits and demerits of convertible bonds and why or why not