## What discount rate is used in the net present value of the refunding decision

Changes in the discount rate used to complete net present value analysis can have a significant impact on the estimated value of the investment and therefore affect the overall investment decision. As the required internal rate of return (IRR) increases, the net present value will: A. decline B. increase C. remain the same D. become zero If Charlie then calculates the present value of his \$40,000 year for 22 years at a 7% discount rate, he’ll find that the net present value is “only” about \$451,000. In other words, it would only take \$451,000 to provide \$40,000/year for 22 years at a 7% rate of return. As shown in the analysis above, the net present value for the given cash flows at a discount rate of 10% is equal to \$0. This means that with an initial investment of exactly \$1,000,000, this series of cash flows will yield exactly 10%. As the required discount rates moves higher than 10%,

The minimum required rate of return (20% in our example) is used to discount the cash inflow to its present value and is, therefore, also known as discount rate. Investments in assets are usually made with the intention to generate revenue or reduce costs in future. In this context of DCF analysis, the discount rate refers to the interest rate used to determine the present value. For example, \$100 invested today in a savings scheme that offers a 10% interest rate will grow to \$110. equal to zero when the discount rate used is the IRR. A net present value of zero implies that an investment: has no expected impact on shareholders. A project has a net present value of \$2,500 and an initial cash outlay of \$2,500. Example Net Present Value Calculation. As an example, assume your project expectation is five years. The expected cash inflows from the project for each year are: Year 1: \$5,000; Year 2: \$7,000; Year 3: \$10,000; Year 4: \$12,000; Year 5: \$15,000; The assumed discount rate is 7%, and the initial cost of the project right now is \$25,000. Answer to What discount rate is used in the net present value of the refunding decision? Skip Navigation. Chegg home. Books. What Discount Rate Is Used In The Net Present Value Of The Refunding Decision? Question: What Discount Rate Is Used In The Net Present Value Of The Refunding Decision? This problem has been solved! Internal Rate of Return (IRR) The Internal Rate of Return (IRR) is the discount rate that sets the net present value of an investment equal to zero. This guide to calculating IRR will give several examples and who why it's used in capital budgeting, private equity and other areas of finance and investing. If IRR is greater than cost of capital, range of discount rates. The two models produce con-flicting decision rules only when the discount rate ranges from about 9.5% to 11.5% for n = 30 and 40. For example, when n = 30 and r, = 10%, Equation (4) results in a positive net present value of about \$2 a bond, while Equation (4c) has a negative value of about the same magnitude.

## The minimum required rate of return (20% in our example) is used to discount the cash inflow to its present value and is, therefore, also known as discount rate. Investments in assets are usually made with the intention to generate revenue or reduce costs in future.

95. What discount rate is used in the net present value of the refunding decision? A. The before tax cost of the new  30 Oct 2011 Refunding decisions actually involve two separate questions: (1) Is it protable The net present value method is used to analyze the advantages of the after- tax cost of the new debt, kd, should be used as the discount rate. 18 Jun 2010 1) What discount rate is used in the net present value of the refunding decision? 2) With regard to interest rates and - Answered by a verified  that cost of capital should be used. Papers by ment runs, the appropriate discount rate should be less than cost of to incorporate the refunding decision into the fi- debt service due to refunding and the net cost of that refunding. According to this approach, if Vt represents the present value of refunding at time t, if Lt and

### Internal Rate of Return (IRR) The Internal Rate of Return (IRR) is the discount rate that sets the net present value of an investment equal to zero. This guide to calculating IRR will give several examples and who why it's used in capital budgeting, private equity and other areas of finance and investing. If IRR is greater than cost of capital,

In this context of DCF analysis, the discount rate refers to the interest rate used to determine the present value. For example, \$100 invested today in a savings scheme that offers a 10% interest rate will grow to \$110.

### 30 Oct 2011 Refunding decisions actually involve two separate questions: (1) Is it protable The net present value method is used to analyze the advantages of the after- tax cost of the new debt, kd, should be used as the discount rate.

Example Net Present Value Calculation. As an example, assume your project expectation is five years. The expected cash inflows from the project for each year are: Year 1: \$5,000; Year 2: \$7,000; Year 3: \$10,000; Year 4: \$12,000; Year 5: \$15,000; The assumed discount rate is 7%, and the initial cost of the project right now is \$25,000. Answer to What discount rate is used in the net present value of the refunding decision? Skip Navigation. Chegg home. Books. What Discount Rate Is Used In The Net Present Value Of The Refunding Decision? Question: What Discount Rate Is Used In The Net Present Value Of The Refunding Decision? This problem has been solved! Internal Rate of Return (IRR) The Internal Rate of Return (IRR) is the discount rate that sets the net present value of an investment equal to zero. This guide to calculating IRR will give several examples and who why it's used in capital budgeting, private equity and other areas of finance and investing. If IRR is greater than cost of capital, range of discount rates. The two models produce con-flicting decision rules only when the discount rate ranges from about 9.5% to 11.5% for n = 30 and 40. For example, when n = 30 and r, = 10%, Equation (4) results in a positive net present value of about \$2 a bond, while Equation (4c) has a negative value of about the same magnitude. If Charlie then calculates the present value of his \$40,000 year for 22 years at a 7% discount rate, he’ll find that the net present value is “only” about \$451,000. In other words, it would only take \$451,000 to provide \$40,000/year for 22 years at a 7% rate of return. here DPV means “discounted present value”, and FV means “future value”, and r is your discount rate (which in this case is 10% or 0.1). The \$10 is future value, and you want to know the discounted present value of that ten dollars, so you divide the FV by (1 + 0.1) to get the DPV of that money.

## (Bond valuation) A \$1,000 face value bond has a remaining maturity. (Bond valuation) A \$1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond's coupon rate is 7.4%.

As shown in the analysis above, the net present value for the given cash flows at a discount rate of 10% is equal to \$0. This means that with an initial investment of exactly \$1,000,000, this series of cash flows will yield exactly 10%. As the required discount rates moves higher than 10%, The minimum required rate of return (20% in our example) is used to discount the cash inflow to its present value and is, therefore, also known as discount rate. Investments in assets are usually made with the intention to generate revenue or reduce costs in future. In this context of DCF analysis, the discount rate refers to the interest rate used to determine the present value. For example, \$100 invested today in a savings scheme that offers a 10% interest rate will grow to \$110. equal to zero when the discount rate used is the IRR. A net present value of zero implies that an investment: has no expected impact on shareholders. A project has a net present value of \$2,500 and an initial cash outlay of \$2,500. Example Net Present Value Calculation. As an example, assume your project expectation is five years. The expected cash inflows from the project for each year are: Year 1: \$5,000; Year 2: \$7,000; Year 3: \$10,000; Year 4: \$12,000; Year 5: \$15,000; The assumed discount rate is 7%, and the initial cost of the project right now is \$25,000.

Discount Rate: The discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window. The rate used to discount future cash flows to the present value is a key variable of this process. A firm's weighted average cost of capital (after tax) is often used, but many people believe that it is appropriate to use higher discount rates to adjust for risk, opportunity cost, or other factors. Adjusted Present Value - APV: The adjusted present value is the net present value (NPV) of a project or company if financed solely by equity plus the present value (PV) of any financing benefits Thanks for A2A David Kemper. You have already covered everything! Let me take a second stab at it: Explanation 1: Discount rate is basically "Desired return" or it is the return that an (individual) investor would expect to receive on a simila A higher discount rate implies greater uncertainty, the lower the present value of our future cash flow. Calculating what discount rate to use in your discounted cash flow calculation is no easy