Discount rate

recognize as the best method for investment project valuation (Goh, Kuo, Ong, & Rodrigues, 2009). It tells whether the investment will increase the firm’s value (Peterson-Drake, n.d.). Indicates whether a proposed project will yield the investor’s required rate of return (Jory, Benamraoui, Boojihawon, & Madichie, 2016). It is consistent with the theory of wealth maximization (Imegi, & Nwokoye, 2015). Moreover, net present value method considers all the cash flows, it makes use of all the project…

The Fed uses open market operations, reserve requirements, and discount rates to gain control of the economy. The Fed uses tools such as reserve requirements to not only keep track of the real level of reserves and provide bank reserves with more security and convenience, but they use it to alter the ability to create…

Takes into account both the timing and the magnitude of cash flows. Disadvantages of NPV: It is uneasy to estimate the discount rate for a long-term period. NPV cannot handle a negative amount in the cash flow other than the initial…

known as the Dividend Discount Model includes a methodology for computing the intrinsic value of stocks. It equates present value of the stock to the future value of dividends. FORMULA & EXPLANATION There are two basic forms of this model namely: • Stable Model Value of stock = D1 / (k-g) Whereby D1 = Expected dividend per share for the next year k = Required rate of return (can be estimated using the CAPM or Dividend Growth Model) g = Expected dividend growth rate • Multi-Stage Growth…

interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency, which usually serves as the state's legal tender.(Heakal, 2003) The primary function of a central bank is to control the nation's money supply (monetary policy), through active duties such as managing interest rates, setting…

problem, due to the concept of time value of money, the decrease in value further it is expected to be received demonstrates that Sue was awarded fairly by the jury. However, one can argue if the interest rate changes then the question cannot be really answered, as we do not know the annual rate of return. I answered the question on the basis of time value of money, as the concept sheds light on such issues brought by the question. That being said, the question doesn’t exactly take into account…

A. Suppose the company is considering a potential investment project to add to its portfolio. Calculate the following items: Before Home Depot calculates the net present value (NPV), internal rate of return (IRR), terminal value (TV), and modified internal rate of return (MIRR) of its newest potential investment project, the company must first calculate its free cash flows. The calculation begins by subtracting the operating costs and the 20% depreciation expenses from the cash flows…

unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase money supply. In short, in times when standard monetary policy has become useless, this is used by central banks to help stimulate the economy. Quantitative easing is used when short-term interest rates are close to that of zero, and no new money is needed to be printed in the process. This is used to increase an institutions…

feasibility and a recommendation will be provided. Discount rate The discount rate of a project portrays the riskiness’s of the investment and takes into account the time value of money. This means that the rate reflects the return that is required for the project to be an acceptable option for investment. For this projects the discount rate is unknown and therefore research has been undertaken to identify an appropriate discount rate. The chosen rate is 9.1% based on assumptions below: With…

is relevant because setting market rates and targets for inflation is a key finance principle used by the government. Market interest rates help drive or control the level of inflation. In this article it is pointed out that rates have been low for an extremely long period of time and even at close to full employment, inflation remains near 1% (Ip, 2016). The situation here is what to do with rates. Inflation and interest rates are linked. Typically when rates rise, the economy slows and…