Discount rate and Incremental cash flows: Difference between pages

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1.  
In financial decision making, the incremental cash flows are those which will be different, depending on whether or not the decision is implemented.


The quoted market return for traded instruments quoted at a discount.
It is only the incremental cash flows which should theoretically be taken account of in making the related financial decision.
 
The market discount rate is quoted based on a percentage of the ''maturity amount''.
 
(This is different from a yield or interest rate, which is conventionally quoted based on a percentage of the ''starting amount''.) 
 
 
In the US this is also known as a 'discount yield'.
 
 
2.
 
Cost of capital.
 
The yield used to calculate discount factors and present values.
 
 
3.
 
The rate used to discount future liabilities of a Defined benefit pension scheme in order to calculate the present value of the liabilities, often for the purpose of comparing them with the market value of the scheme’s assets. 
 
Historically it was common to use the blended rate of investment return expected on the actual assets in the scheme, but typically now a market rate is used, such as the government bond or AA corporate bond yield for a fixed income security with a similar duration to that of the underlying liabilities.
 
 
4.
 
In the US, the interest rate that member banks pay the Federal Reserve when the banks use securities as collateral.  The discount rate acts as a benchmark for interest rates issued. 
 
Other central banks also have similar discount rates.


For example, 'Sunk costs don't count'.


== See also ==
== See also ==
* [[CertFMM]]
* [[Cashflow]]
* [[Cost of capital]]
* [[Discount]]
* [[Discount basis]]
* [[Discount instruments]]
* [[Discounted cash flow]]
* [[Discounted cash flow]]
* [[Interest rate]]
* [[Monetary policy]]
* [[Nominal annual discount rate]]
* [[Periodic rate]]
* [[Yield]]
 
 
===Other links===
[http://www.treasurers.org/node/8837 Students: Triumph with timelines, The Treasurer, March 2013]


[[Category:Corporate_finance]]

Revision as of 14:19, 23 October 2012

In financial decision making, the incremental cash flows are those which will be different, depending on whether or not the decision is implemented.

It is only the incremental cash flows which should theoretically be taken account of in making the related financial decision.

For example, 'Sunk costs don't count'.

See also