Discounting the expected cash flows in valuation process, Financial Management

Assignment Help:

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) 


Related Discussions:- Discounting the expected cash flows in valuation process

ANY, need to understand some basics of changes in working capital

need to understand some basics of changes in working capital

Excess of the inadequate of the working capital, Every business concern sho...

Every business concern should have neigh adequate capital to run the business operations it should have neither redundant nor excess working capital non inadequate or Shortage of

Liabilities, compare and contract the potential liabilities of owners of pr...

compare and contract the potential liabilities of owners of proprietorship,partnership and corporation

What is accumulated depreciation?, What is accumulated depreciation? De...

What is accumulated depreciation? Depreciation is the provision of an asset's initial cost over time.  Accumulated depreciation is the sum of all the depreciation expense that

How to calculate correlation co-efficient, Q. How to calculate correlation ...

Q. How to calculate correlation co-efficient? The correlation co-efficient measures the nature and the extent of relationship between the stock market index return and the stoc

Calculate the net present value-investment proposal, As you checked the Ans...

As you checked the Answer Key to Question 6 in the Mastery Check from this lesson you may have noted that each year's net cash flows are calculated by adding depreciation back to n

Eurobonds, The term 'Eurobonds' refers to bonds issued and sold outsi...

The term 'Eurobonds' refers to bonds issued and sold outside the home country of the currency. For example, a dollar denominated bond issued in the UK is a Euro (

Determine the post-merger eps and post-mergershare price, Post-merger EPS a...

Post-merger EPS and post-mergershare price An estimated post-merger EPS can be calculated by: (Combined earnings) / total shares after merger An estimated post-merger s

Assessment of in individual strengths and weaknesses, Assessment of in indi...

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

Illustrating a straddle, Options Traded on Legal and General August 14  200...

Options Traded on Legal and General August 14  2009 Share   Price         Exercise      Price    Calls       Puts                                 Sep        Dec        Mar

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd