Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Question
Chapter 5.2, Problem 5.2BCQ
Summary Introduction
To discuss: The opposite of discounting the cash flows to be received in the future back to the present
Introduction:
The value of dollar at present will not be the same as the value of dollar earned in the future. The value of money deteriorates as the years pass by. Hence, the present value of money is different from the
The present value of money helps in calculating the present value of future cash receipts. The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate.
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How does discounting, as used in determining present value, relate to compounding, as used in determining future value? How would the present value ever be used?
What is the concept of present value? What is discounting?
According to the time value of money concept, also referred to as the present discounted value, is based on the principle that a sum of money in the present has lesser value than the same sum to be paid in the future.
Select one:
i. True
ii. False
Chapter 5 Solutions
Fundamentals of Corporate Finance
Ch. 5.1 - Prob. 5.1ACQCh. 5.1 - Prob. 5.1BCQCh. 5.1 - Prob. 5.1CCQCh. 5.2 - Prob. 5.2ACQCh. 5.2 - Prob. 5.2BCQCh. 5.2 - What do we mean by discounted cash flow, or DCF,...Ch. 5.2 - Prob. 5.2DCQCh. 5.3 - Prob. 5.3ACQCh. 5.3 - Prob. 5.3BCQCh. 5 - You deposited 2,000 in a bank account that pays 5...
Ch. 5 - Prob. 5.2CTFCh. 5 - Charlie invested 6,200 in a stock last year....Ch. 5 - Prob. 1CRCTCh. 5 - Compounding [LO1, 2] What is compounding? What is...Ch. 5 - Prob. 3CRCTCh. 5 - Compounding and Interest Rates [LO1, 2] What...Ch. 5 - Prob. 5CRCTCh. 5 - Prob. 6CRCTCh. 5 - Prob. 7CRCTCh. 5 - Prob. 8CRCTCh. 5 - Prob. 9CRCTCh. 5 - Prob. 10CRCTCh. 5 - Prob. 1QPCh. 5 - Prob. 2QPCh. 5 - Calculating Present Values [LO2] For each of the...Ch. 5 - Calculating Interest Kates [LO3] Solve for the...Ch. 5 - Prob. 5QPCh. 5 - Calculating Interest Rates [LO3] Assume the total...Ch. 5 - Prob. 7QPCh. 5 - Calculating Interest Rates [LO3] According to the...Ch. 5 - Calculating the Number of Periods [LO4] Youre...Ch. 5 - Prob. 10QPCh. 5 - Prob. 11QPCh. 5 - Prob. 12QPCh. 5 - Calculating Interest Rates and Future Values [LO1,...Ch. 5 - Calculating Rates of Return [LO3] Although...Ch. 5 - Prob. 15QPCh. 5 - Prob. 16QPCh. 5 - Calculating Present Values [LO2] Suppose you are...Ch. 5 - Prob. 18QPCh. 5 - Calculating Future Values [LO1] You are scheduled...Ch. 5 - Prob. 20QP
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- The process that determines the present value of a single payment or stream of payments to be received is discounting. True / Falsearrow_forwardwhy does an increase in the discount rate resuce the present value?arrow_forwardWhich of the following is not a variable in the basic present value equation? Multiple Choice Number of payments. Future value. Discount rate. Present value. Time horizon.arrow_forward
- How is discounting used in the context of present values and future values? O To reduce a present amount to its future value O To increase a present amount to its füture value O To increase a future amount to its present value O To reduce a future amount to its present valuearrow_forwardThe present value of a perpetuity cannot be computed, but the future value can. True or False?arrow_forwardDoes Compounding Occur at a Different Rate than that at which payments are made? How?arrow_forward
- a present value is converted to a future value through compounding, explain this to me.arrow_forwardWhat is the difference between the discount rate used for net present value and the internal rate of return methods?arrow_forwardThe difference between the expected return and the actual return is referred to as the unexpected gain or loss. True or False?arrow_forward
- When do you think a person would opt to use the Payback Period Method instead of the Net Present Value or Internal Rate of Return? Give an example.arrow_forwardIs the following statement is true or false? Amortization is not a payment process. True O Falsearrow_forwardDefine Present value and future value. If present value and future value are equal what is the rate? Is future value always greater than present value?arrow_forward
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