# How to calculate discount factor

##### [DOC File]The International Cost of Capital and Risk Calculator (ICCRC)

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You would need to simulate the cash flows and the discount rate - which would be complicated. An alternative is to use the lower discount rate, 10%, but adjust the cash flows downward by the same factor. We get the same present value. In this case, we adjust the discount rate down 50% and the cash flows down 50%, so $50/.10=$500.

##### [DOC File]College of Business Administration

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The expression 1/(1 + r)t is called the present value factor or discount factor. The interest rate, r, is sometimes referred to as the discount rate. Calculating the present value of a future cash flow to determine its worth is commonly called discount cash flow valuation. Example: Evaluating Investments

##### [DOC File]Revision 2 – Investment Appraisal

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(4 marks) (c) (i) Explain briefly the meaning of the term ‘sensitivity analysis’ in the context of investment appraisal; (1 mark) (ii) Calculate the sensitivity of the investment in the new machine to a change in selling price and to a change in discount rate, and comment on your findings.

##### [DOC File]Capital Budgeting - exinfm

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Example 8 — Calculate Present Value of Cash Flows. Annual Project Cash Flows $ 5,788. Discount Factor per Exhibit 2 x 3.605 (1) Present Value of Annual Flows $ 20,866 . Terminal Cash Flow $ 3,250. Discount Factor per Exhibit 1 x .567 (2) Present Value of Terminal Flow 1,843. Total Present Value $ 22,709

##### [DOC File]VALUATION: FACTORS AND METHODS

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A thing is worth what it will earn over time discounted (reduced) by a factor “i” to account for risk, expected inflation and investors’ liquidity preference or “real” rate of interest. Primary weakness: Numbers must be forecast. Gordon Growth Model meaningless if growth is nearly as great or greater than the discount rate.

##### [DOCX File]Seattle Pacific University

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Again, the “1 + i” is compounded to account for the belief that risk grows geometrically over time rather than arithmetically. For example, period 2’s discount factor would be (1 + i)2 or (1 + i) * (1 + i). Given a discount rate of 10%, year 2’s discount factor would be multiplicative (1 + .21) rather than additive (1 + .20).

##### [DOC File]CAPITAL BUDGETTING - LSP4YOU

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Project cash inflow discount PV of Initial NPV Rank. Factor Cash inflow Investment ----- A 8000 4.4873 35898.4 40000 - 4102 rejected. B 4000 2.2822 9128 10000 - 872 rejected. C 8000 3.3522 26817 20000 6817 1. D 6000 5.014 30084 24000 6084 2. E 5000 5.842 29210 30000 -790 rejected

##### [DOC File]Chapter 5 Project Appraisal and Risk - Yola

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Umunat plc uses a discount rate of 12% for investment appraisal purposes and expects investment projects to recover their initial investment within two years. Required: (a) Explain why risk and uncertainty should be considered in the investment appraisal process. (5 marks) (b) Calculate and comment on the payback period of the project.

##### [DOC File]Final Exam Preparation - Stanford University

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From this equation, we see that the swap rate is determined by the present value of floating-rate payments, the notional amount, the number of periods in a year, and the forward discount factor. The present value of floating-rate payments is also determined by the notional amount, the number of periods in a year, and the forward discount factor.

##### [DOC File]Extra Practice Questions for Exam 3

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Calculate Reebok's payoff if both play this strategy. Let be the discount factor. 4. Given the information of the last three questions, if both companies choose "always pick a low price" as their strategy, is this an equilibrium of the pricing game? a. Yes.

##### [DOCX File]WordPress.com

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It is expected that the new product can be sold at 10 Rs per unit. The annual fixed cost (only cash) will be Rs 20,000. The cost of capital of the company is 15%. The only uncertain factor is the volume of sales. To start with, the company expects to sell at least 40,000 units during the first year. Ignore taxation. You are required to calculate:

##### www.caa-global.org

Columns Q:S check that the discount factor for year t is less than the discount factor for year t-1 for each year for of the three investments. Spot checks have been performed. For example, the discount factor for year 35 using a 4% discount rate should be (1.04)-35 = 0.2534.

##### [DOC File]Agricultural Economics 330

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T F The appropriate discount rate to use is an after-tax discount rate and is calculated by multiplying the pre-tax discount rate by one plus the marginal tax rate. T F When laying out the cash flows for an investment alternative, the book value (or taxable basis) of an investment is not considered a cash inflow.

##### [DOC File]INFLATION, CASH FLOWS AND DISCOUNT RATES

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What is the discount rate for discounting the real cash flow to compute its present value? Using (7) and the data stated in the problem, we have: = = = 4.854% (d) What is the present value of the $10,000 if we discount the real cash flow in computing the present value? From (a) we know that the real cash flow is $9,151.

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