According to Zohar Hod of SuperDerivatives, a derivatives-pricing firm, there has already been movement away from LIBOR towards using overnight index swaps to discount cash flows on certain instruments.
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Interest rates are used to discount those cash flows and calculate their present value.
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To discount the cash, he uses a 10% rate 3% for inflation plus a very modest 7% for the real returns he strongly believes he could get elsewhere in the stock market.
As explained in our last post on the topic, Total did manage to squeeze Chesapeake for a discount on cash it had pledged for drilling on a JV in the Barnett shale.
This is a problem for states with tax rates around 9%. (Has a roofer or painter ever offered you a discount for cash?) With combined state-federal rates well above 30%, evasion would be rampant.
"This group is going to lead the next advance, " predicts Berry, who points out that many companies are trading at a discount to their cash reserves and have blockbuster products in the pipeline.
Because the dividends on Laffer Shares would vary depending upon GDP growth rates, the markets would discount the expected cash flows at an equity rate of return, which is considerably higher than the interest rate on government bonds.
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As a result the most important variables to the price of an asset are the level and future shape of free cash flows, and the discount rate used, which, as you rightly point out, can be analysed in terms of risk premium.
At the heart of Buffett's simple but highly effective strategy is having the discipline to recognize when the market is not properly reflecting the true long-term value of a particular business, which can be calculated by discounting its likely future cash flows at an appropriate discount rate.
Its valuation of six times debt-adjusted cash flow is a 20% discount to the sector.
Today, Apple trades at 7.2x lowered forward earnings (less cash), or at a discount of more than 30%.
Eighteen months ago Pierce turned to an alternative form of financing called factoring--the process of selling receivables at a discount to raise quick cash.
Most people searching for deals will ask, without embarrassment, for money off a slightly damaged product, or for a discount when paying with cash.
If the cardiologist I use gives them an 85% discount to just pay cash up front, then the patient actually spends less out of pocket by not using their insurance.
Also, the company is embarking on a new marketing strategy that shies away from cash-back and employee-discount incentive programs and instead puts lower price tags on the vehicles to begin with.
And since online consumers expect to buy used titles at a steep discount, students still leave cash on the table.
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Miners and lumberjacks could use the scrip at the company store--often the only store in town--or redeem the tokens for cash, at a steep 25% discount.
The interest rate allows me to discount the value of some cash payment in the future to the value the principle would hold for me if I had it now.
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Indeed, of the nearly 6.2 GW of newly installed wind energy projects that elected the cash grant incentive, the LBNL analysts discount nearly 60% of them as projects for which the grant may not have been essential for completion (e.g. projects were already completed or would have otherwise been able to utilize the production tax credit, or PTC, to help finance the projects).
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Low interest rates reduce the discount rate on corporate earnings and cash flow, raising their present value.
Think of credit card companies offering frequent flier mile bonuses or discount brokers enticing IRA rollovers with cash bonuses.
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What if we decide to give people cash instead of directly providing a good at a discount?
One thing about fixed-income funds in the closed-end world, Kate, is that every 12% approximately, of a discount, equals 1% of real cash flow.
So presumably, if the deal is allowed to proceed, the ECB will ensure that all the risk actually remains with Bankia and the Spanish government - and therefore with Spanish taxpayers - by imposing a massive discount (or haircut) on the amount of cash it would exchange for the bonds.
Todd Roscoe, a former executive at the hospital chain Tenet Healthcare, says that a 40% discount off the inflated list price is the norm for cash-paying customers.
Tenet Healthcare ( THC - news - people ), says that a 40% discount off the inflated list price is the norm for cash-paying customers.
Notwithstanding all the man is doing to westernize his finances--with a PricewaterhouseCoopers audit, a cash dividend and an ADR--investors still apply a transparency discount to the whole Russian market.
It reduced the discount rate, at which banks finding themselves short of cash can, in the spirit of Bagehot, borrow from the central bank, and lengthened the term for which it would lend.
With a cash rebate, the customer knows ahead of time how big of a discount to expect.
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