Fn = P (1 + r )n where F n = accumulation or future value P = one-time investment today r = interest rate per period n = number of periods from today
The present value of future cash flows is inversely related to the interest rate.
Discount factor is the factor determining future cash flow, but multiplying the cash flow to obtain present value. Discount rate is used in calculations to equal the cost of capital.
Present value annuity factor calculates the current value of future cash flows. The present value factor is used to describe only the current cash flows.
cash reserve ratio
The face value is what your beneficiaries will collect. The cash value is the excess of your premium payments over the cost of the insurance. Click here for more about life insurance cash value.
How is the value of any asset whose value is based on expected future cash flows determined?
formula for future value of a mixed stream
Formula for future value = 100(1 + 0.8)^10 = 215.89
Discount factor is the factor determining future cash flow, but multiplying the cash flow to obtain present value. Discount rate is used in calculations to equal the cost of capital.
The present value of future cash flows is inversely related to the interest rate.
Future Value = Value (1 + t)^n Present Value = Future Value / (1+t)^-n
Since the valuation of cash flows takes the amount of time to discount or compound into consideration, the timing of the cash flows plays an important role in determining both present and future value of those cash flows in an investment. For example, a cash flow occurring one year from now will be discounted less than a cash flow taking place five years from now. Similarly, you would rather receive $100 today as opposed to $100 five years from now since the money received today may receive compounding interest while you wait to receive the $100 five years from now.
intrinsic value
1. Why are we interested in cash flows rather than accounting profits in determining the value of an asset?
Original cashlow to match principal
because that is what is being used
In valuing a firm with no cash dividend, one approach is to assume that at some point in the future a cash dividend will be paid. You can then take the present value of future cash dividends. A second approach is to take the present value of future earnings as well as a future anticipated stock price. The discount rate applied to future earnings is generally higher than the discount rate applied to future dividends.