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

Factors affecting cost of capital, Factors Affecting cost of capital are el...

Factors Affecting cost of capital are elements in the business environment that cause a company cost of capital to be high and low. Figure below illustrative the various primary fa

Describe the balance of payments identity, Describe the balance of payments...

Describe the balance of payments identity and discuss its implications under the fixed and flexible exchange rate regimes. Answer:  The balance of payments recognize holds that t

Regulatory aspect in employees provident fund organization, Regulatory Aspe...

Regulatory Aspect Employees Provident Fund Organization (EPFO) is under the Ministry of Labor and is a primary organization for retirement income for private employees in India

Defqa, Ask question #Minimum 100 words acceptedaqs #

Ask question #Minimum 100 words acceptedaqs #

Find out the future value of annuity at the end of five year, Goral is requ...

Goral is required to pay five equal annual payments of Rs. 10,000 each in his deposit account that pays 10% interest per year. Find out the future value of annuity at the end of fi

Explain the concept of working capital, Q. Explain the concept of working c...

Q. Explain the concept of working capital. Distinguish between variable and permanent working capital. What is the significance of such distinction in financing working capital req

Explain dual currency bond, Explain Dual Currency Bond A dual currency ...

Explain Dual Currency Bond A dual currency bond is a straight fixed-rate bond that is issued in one currency and pays coupon interest in that similar currency.  At maturity, th

Partnership, Par tnership A legally authorized business form in wh...

Par tnership A legally authorized business form in which two or more partners are co-owners, sharing profits, losses, and liabilities related with the business they own.

Equity theory, Equity Theor y This theory proposes that indivi...

Equity Theor y This theory proposes that individuals measure their out- comes/input ratio. Equity theory distinguish that inspiration is not the outcome of an absolute

Debt holders versus shareholders, Debt holders versus Shareholders A se...

Debt holders versus Shareholders A second agency problem arises because of potential conflict between stockholders and creditors. Creditors lend finances to the firm at rates w

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