a. What do we mean by the present value of an investment? b. The process of discounting
Question:
a. What do we mean by the present value of an investment?
b. The process of discounting a future amount back to the present is the opposite of doing what?
c. What do we mean by discounted cash flow, or DCF, valuation?
d. In general, what is the present value of $1 to be received in t periods, assuming a discount rate of r per period?
Step by Step Answer:
a The present value of an investment refers to the current value of a future cash flow or a series o...View the full answer
Fundamentals of corporate finance
ISBN: 978-0073382395
9th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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.
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