Discounted cash flow
Student’s name
Affiliation
Course
Date
Discounted cash flow is a combination of future cash transaction series calculated on a present value basis. For each year, a cash flow is discounted to a greater level compared to the previous year which had a longer time. The future value is greater than the present value since cash has interest earning potential known as time value of money (Morgan Stanely, 2010). These value calculations evaluate values in perpetuities, loans, sinking funds, annuities bonds and mortgages. The calculations compare cash flows which don’t occur within a simultaneous time. Discounted cash flow can be calculated as follows:
A Net Present Value is a major method and tool used in discounted cash flow analysis for using the time value of money to evaluate long-term payments. It measures the surplus or deficit of cash flows, in present value terms, over the cost of funds. NPV is described as the difference amount between the sums of discounted: cash outflows and cash inflows. NPV compares today’s present value of money with to the present value of money in the future, placing returns and inflation into account. NPV is calculated as follows;
Time value of money is the main principle and foundation of discounted cash flow analysis in finance. It deals with compound and simple interests as well as time and risk model with regard to cash flows and money (Chambers& Lacey, 2004). TVM calculates the future value of a given amount of money. This includes the calculations of a stream cash flow of the current cash value. Time value of money uses the following type of calculation; Future Value of a Lump Sum: Future Value of an Annuity: Present Value of a Lump Sum: Present Value of an Annuity. (TVM)Time value of money is the trade-off between the future gain and the present use of money. TVM measures the benefits and costs of investment alternatives occurring within in diverse time periods
The rule of 72 in Compound interest is an easy mode of quick estimation on how long it takes an investment to double. It works on an exponential growth and requires one to divide 72 by the interest rate which results into the years it takes for the investment to double. This rule states that the percentage interest multiplied by number of years taken to double a given amount of cash which is equivalent to 72.
US Securities and Exchange Commission is a website that hosts current market value of market indexes Such as; Nasdaq 100 index that tracks the performance of 100 traded non financial local as well as international securities which have been listed on the Nasdaq stock market.
References
Morgan Stanley-American Finance Association Award For Excellence In Finance 2010. The
Journal of Finance, vi-ix.
Chambers, D. R., & Lacey, N. J. (2004). Modern corporate finance: theory and practice. New
York, NY: HarperCollins College Publishers.