As the discount rate increases, the present value of a given future cash flow also increases. Do
Question:
As the discount rate increases, the present value of a given future cash flow also increases. Do you agree? Explain.
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Step by Step Answer:
No As the discount rate increases the present valu...View the full answer
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Related Video
The present value of future cash flows is calculated to determine the value today of a stream of future cash flows. It is calculated by discounting the future cash flows to their present value using a discount rate. The discount rate reflects the time value of money and the risk of the cash flows. It is important because it helps in making investment decisions, capital budgeting, loan decision making, and financial planning. By discounting future cash flows to their present value using a discount rate, it takes into account the time value of money and the risk associated with the cash flows. This allows investors, lenders, and financial planners to evaluate the viability of potential investments, projects, or loan applications, and to estimate the future value of investments or savings. calculating the present value of future cash flows is important in making investment decisions, capital budgeting, loan decision making, and financial planning. It helps to determine the viability of long-term projects, evaluate loan applications, and estimate the future value of investments or savings.
Students also viewed these Managerial Accounting questions
-
As the discount rate increases, the present value of the returns falls more rapidly than the present value of the costs. Why?
-
As the discount rate decreases, the present value of a given future cash flow also decreases. Do you agree? Explain.
-
The present value of a given cash flow gets smaller as the number of periods gets larger, regardless of whether cash flow is discounted with a real rate or nominal rate. Explain why this relationship...
-
Assume FCFs are $2 million for two years (FCF1 and FCF2) and FCFs grow 3% thereafter. Assume WACC = 7%. Calculate firms value
-
A researcher wants to estimate the average income of parents of college students. To accomplish that, he surveys a sample of 250 students at Yale. Is this a representative sample? Explain your answer.
-
Bio Doc Corporation is a biotech company that makes a cancer-treatment drug in a single processing department. Direct materials are added at the start of the process. Conversion costs are added...
-
From the three rightmost columns in Table 8.7, the weighted scores are summed. The bus terminal area has a low score and can be excluded from further consideration. The other two sites are virtually...
-
AMR Corporation (parent company of American Airlines) reported the following for 2007 (in millions). Service cost.................................................$370 Interest on...
-
Write a C++ to calculate and display: a. Sum of all numbers between 1 and 10 b. Sum of all even numbers between 1 and 10 c. Sum of all odd numbers between 1 and 10
-
Use Algorithm 5.4 to approximate the solutions to the initial-value problems in Exercise 2. In Exercise 2 a. y' = (2 2ty)/(t2 + 1), 0 t 1, y(0) = 1, with h = 0.1 actual solution y(t) = (2t + 1)/(t2...
-
Explain how the cost of capital serves as a screening tool when using (a) The net present value method and (b) The internal rate of return method.
-
Refer to Exhibit 144. Is the return on this investment proposal exactly 14%, more than 14%, or less than 14%? Explain.
-
Let X 1 , X 2 , and X 3 be a set of three independent Bernoulli random variables with unknown parameter p = P(X i = 1). It was shown on p. 324 that p = X 1 + X 2 + X 3 is sufficient for p. Show that...
-
Which of the following statements, often made by prospects, would you interpret as buying signals? a. How much would the payments be? b. Tell me about your service department. c. Our company already...
-
Pete Pole has just discontinued its lowest line of high-quality clotheslines. In its inventory, Pete has 60000 lines that cost \(\$ 40\) per line to manufacture. At the current selling price of \(\$...
-
You have just interviewed for a job that you would really like to have. You have heard that it is a good idea to follow up an interview with a thank-you note or letter and an indication of your...
-
Simmons Skates produces several products that are sold by toy shops across the country. Production of one product, long-board skates, uses all available machine hours on machine 24B. The skate, which...
-
You work as a wholesale salesperson for a plumbing supply company. One of your customers, a contractor, has an open line of credit with your company for $10 000 worth of products. He is currently at...
-
Which of the following best describes the relationship between the current ratio and the cash ratio? A. The current ratio and the cash ratio should not bear any relation to one another. B. The...
-
The tractor is used to lift the 150-kg load B with the 24-mlong rope, boom, and pulley system. If the tractor travels to the right at a constant speed of 4 m/s, determine the tension in the rope when...
-
Determine the product of the addition reaction. CH3 C CH-CH3 + HCN NaCN
-
Why should the timing of direct materials purchases be closely coordinated with the production budget?
-
Why should the timing of direct materials purchases be closely coordinated with the production budget?
-
a. Discuss the purpose of the cash budget. b. If the cash for the first quarter of the fiscal year indicates excess cash at the end of each of the first two months, how might the excess cash be used?
-
cos (2x2)-1 Let f(z) = Evaluate the 6th derivative of fat z = 0. 2 f(0) (0)= Hint: Build a Maclaurin series for f(x) from the series for cos(x).
-
Do you think that it should be legal to falsely implicate a suspect as a participant in a crime by suggesting that there is physical evidence from their person, reflecting that they were present at...
-
In this practice activity, you will identify key roles and responsibilities of criminal justice professionals regarding victims. You will also describe potential consequences to victims when those...
Study smarter with the SolutionInn App