Menu
Query on discounting of cash flows
Hi, What is exactly the logic of discounting future cash flows? I understand when future cash inflows are discounted with "expected return". But in one instance I saw Savings in future is discounted with "interest on loan rate"? What is the logic in that?
Replies (2)
It simply means depreciation in value of money i.e. today Rs. 100 are equal to Rs. 110 after 1 year, say. That is why Future CFs are discounted.
We use expected return for the true value of expected income now but the savings are depend upon the market conditions therefore to know the correct market value of savings we use market rate I.e loan rate
Recent Topic
- Dividend difference in 26AS, AIS, TIS
- 194JB INCOME
- Filing ITR3 where income under section 44AD with L
- What is superannuation fund
- GST Refund of input services under Inverted Duty S
- Dividend Reporting
- Real operational bottlenecks after firms use Tally
- Purchase return under gst
- Long Term Capital Loss - cannot be carried forward
- Cross-utilization of ITC between Trading and Resta
Related Topics
CAclubindia
