ESG-Investing Exam Dumps | All else equal, a higher discount rate applied to a company's discounted cash flow (DCF) analysis will

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Question 45/136

All else equal, a higher discount rate applied to a company's discounted cash flow (DCF) analysis will lead to:

A. a lower estimate of intrinsic value

B. the same estimate of intrinsic value

C. a higher estimate of intrinsic value

Correct Answer: A

A higher discount rate applied to a company's discounted cash flow (DCF) analysis will lead to a lower estimate of intrinsic value.
* Higher discount rate: The discount rate is used to calculate the present value of future cash flows. A higher discount rate reduces the present value of those cash flows.
* Intrinsic value: The intrinsic value of a company is the sum of the present values of its expected future cash flows. As the discount rate increases, the present values decrease, resulting in a lower estimate of intrinsic value.
References:
* CFA ESG Investing Principles
* Standard finance and valuation textbooks explaining DCF analysis

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