The recognition that a dollar in the present is more valuable than a dollar in the future. Present-value calculators and present-value tables assist in converting future dollars to the present value in order to make a...
The recognition that a dollar in the present is more valuable than a dollar in the future. Present-value calculators and present-value tables assist in converting future dollars to the present value in order to make a...
Why does the internal rate of return equate to a net present value of zero? Internal rate of return and net present value are discounted cash flow techniques. To discount means to remove the interest contained within the...
of a bond is the rate that will discount both the bond’s future interest payments and the bond’s maturity value to a present value that is equal to the bond’s current market value. If the market interest rate...
How do you compute the selling price of a bond? Definition of Selling Price of Bond The selling price (or the market value) of a bond is the present value of the future contractual cash amounts that are going to be...
outflows for each option. Since these cash flows will occur at different times, you must “discount” the future cash flows to a present value. (This is necessary in order to recognize the time value of money.) The...
describes an __________. 3. Methods that compute the present value of future cash flows are referred to as __________ cash flow techniques. 4. Part of the difference between a company’s net income during a specific...
is the cash amount plus the note’s present value at time that the asset is purchased. To illustrate this, let’s assume that equipment is purchased by giving $50,000 of cash plus a promissory note of $100,000. If...
, the expected net receipts will be $1,000. Often we need to know the present value of amounts expected in the future. We calculate the present value by discounting the future amounts. In this situation discounting means...
What is DCF? In accounting, DCF refers to discounted cash flows or to the discounted cash flow techniques such as net present value or internal rate of return. DCF is a preferred method for evaluating capital...
A process which discounts future cash flows to the present in order to reflect the time value of money. Examples of the discounted cash flow model are net present value and internal rate of return.
payments are a constant amount, the market interest rate for the bond is likely to be continually changing. A change in the market interest rate will cause the present value of the interest payments (and the present...
The present fair market value.
Our Explanation of Future Value of a Single Amount will show you the power of compounded interest on a single deposit. You will see how the future value tables can be useful as well as the rule of 72.
in an investment having a net present value of zero. The internal rate of return is one of the tools in capital budgeting that considers both of the following: The time value of money All of the cash payments and cash...
Our Explanation of Future Value of a Single Amount will show you the power of compounded interest on a single deposit. You will see how the future value tables can be useful as well as the rule of 72.
Why does a bond's price decrease when interest rates increase? Definition of Bond’s Price A bond’s price is the present value of the following future cash amounts: The cash interest payments that occur every six...
flows so that the present value of those cash flows is equal to the cash outlay for the project. Net present value discounts the project’s future cash flows by a predetermined rate, such as the rate needed or the...
accounting amounts to see how the investments will impact its future Internal rate of return Net present value The discounting of cash flows can be done using computer software, financial calculators, or present value...
are paying interest. However, our agreement did not specify any interest, nor did it state an interest rate. To find the interest rate that is implicit in this arrangement, you need to carry out what’s known as a...
Our Explanation of Future Value of a Single Amount will show you the power of compounded interest on a single deposit. You will see how the future value tables can be useful as well as the rule of 72.
Present value.
See net present value.
Our Explanation of Future Value of a Single Amount will show you the power of compounded interest on a single deposit. You will see how the future value tables can be useful as well as the rule of 72.
Future cash amounts that have not been discounted to their present value.
A term often used in present value calculations to distinguish a one-time cash amount from an annuity (or series of equal payments).
A term used in evaluating business investments. It represents the targeted rate that a company needs to earn. It is also referred to as the discount rate, because this rate is used to discount the future cash flows to...
An interest rate that is not explicitly stated. For example, instead of paying $100 cash a person is allowed to pay $9 per month for 12 months. The interest rate is not stated, but the implicit rate can be determined by...
A contra asset account arising when the present value of a note receivable is less than the face amount of the note. The credit balance in this account will be amortized to interest revenue over the life of the note.
In accounting this is the rate used to discount future cash flows in order to determine their present value.
The rate that will discount all cash flows to a net present value of zero.
What is the difference between residual value, salvage value, and scrap value? The terms residual value, salvage value, and scrap value are often used when referring to the estimated value that is expected at the end of...
be calculated by discounting the bond’s future cash amounts (semiannual interest payments and the maturity amount) back to the amount of cash paid to buy the bond (the present value). Example of Actual or Real...
Should a company focus on cash flows or accounting profits when making a capital expenditure decision? Using the incremental cash flows and discounting them to reflect the time value of money is the preferred method. The...
An account used in combination with another account. For example, the account Allowance for Doubtful Accounts is used with Accounts Receivable in order to present the net amount of the accounts receivable. The account...
that the future value of $1,100 has a present value of $1,000. The difference of $100 will be reported as interest income during the 365 days that the company is earning the interest. Example of the Time Value of Money...
What is the rationale for not reporting plant assets at their liquidation value? I will assume that the plant assets‘ liquidation values are higher than the present carrying values when answering your question. Plant...
avoid the use of the payback reciprocal. Instead, you should compute the internal rate of return or the net present value because they will discount each of the actual cash amounts to reflect the time value of money....
Our Explanation of Future Value of a Single Amount will show you the power of compounded interest on a single deposit. You will see how the future value tables can be useful as well as the rule of 72.
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