Question

*Why is present value calculated on cash flow and not
on income?*

*Answer of few sentences would be
sufficient.*

Answer #1

**Solution:**

In capital budgeting or investment appraisals, present value is calculated on cash flows and same is compared with initial investment to know that investment provides desired rate of return or not. The present value is calculated on cash flows because we compare the initial cash investment with present value of future cash flows. If we compare, present value of net income with initial investment, this will not be a peer to peer comparison. Further net income includes various non cash items like depreciation amortization etc.

In view of the above, present value calculated on cash flow and not on income.

discuss what the term "free cash flow" means? How is it
calculated? Why is it an important metric?

What is the present value of the following cash-flow stream if
the interest rate is 4%? (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Year
Cash Flow
1
$
170
2
370
3
270
Present value

All else equal, the present value of a future cash flow ______
as the period of time, N, increases.
Consider the appropriate formula to answer this question.

In a cash flow statement, why are noncash costs added to
post-tax income in order to calculate the net cash flow?
a) Noncash costs are only considered before taxes in the cash
flow statement.
b)This accounts for the fact that noncash costs are tax
deductible, but that no cash payment actually occurs.
c) Cash flow statements only consider noncash costs after taxes
have been calculated.
d)This accounts for the fact that businesses write a check for
noncash costs every year.

Consider the following cash flows and calculate the Present
Value of this cash flow stream if the interest rate is
6%. Please include two decimals in your answer and a
negative if appropriate
Year 0: $-327
Year 1: $190
Year 2: $0
Year 3: $0
Year 4: $162
Answer =

In a few sentences, explain what the Taylor rule is and
why it is important for monetary policy.

Consider the following cash flows and calculate the Present
Value of this cash flow stream if the interest rate is
5%. Please include two decimals in your answer and a
negative if appropriate
Year 0: $113
Year 1: $-379
Year 2: $0
Year 3: $0
Year 4: $492

Consider the following cash flows and calculate the Present
Value of this cash flow stream if the interest rate is
3%. Please include two decimals in your answer and a
negative if appropriate
Year 0: $-210
Year 1: $172
Year 2: $0
Year 3: $0
Year 4: $228

How is net cash flow calculated if depreciation is the only
noncash item in a firm's income statement?
Select one:
a. Net cash flow = Net income + Depreciation and
amortization
b. Net cash flow = Accounting profit - Depreciation and
amortization
c. Net cash flow = Accounting profit - Operating cash flow
d. Net cash flow = Fixed assets + Depreciation and
amortization
e. Net cash flow = Operating cash flow - Depreciation and
amortization

The present value of the following annual cash flows is
$9,920.77. The cash flow at t=2 is missing. Using an interest rate
of 10%, find the value of the missing cash flow. Annual cash flows:
$0 at time 0 and time 1, $4,000 at time 3, and $6,000 at time
4.
$2500
$2750
$3000
$3250

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 33 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 3 hours ago