Final answer:
Generally, a 1% change in the discount rate has a more pronounced impact on a company's valuation than a 1% change in revenue, as it affects the present value of all future cash flows. However, factors like company's profit margin and growth prospects could influence the relative impacts, so it is not a universal rule.
Step-by-step explanation:
Impact of Revenue and Discount Rate Changes on Valuation
When considering the effect of a 1% change in revenue versus a 1% change in the discount rate on the valuation of a company or financial asset, the impact can vary widely based on multiple factors including the nature and stability of the revenue, as well as the expectations of future earnings and interest rates.
A change in the discount rate often has a more pronounced impact on valuation because it affects the entire stream of expected future cash flows, which are discounted back to their present value. It is not uncommon for a marginal change in the discount rate to significantly alter the present value calculation of these cash flows, hence greatly affecting the valuation. Conversely, a 1% change in revenue affects only the magnitude of future cash flows but doesn't change the rate at which they are discounted. Therefore, while increases in revenue do affect valuation by increasing the sum of discounted future cash flows, the impact of a 1% increase in revenue is typically less dramatic than a 1% change in the discount rate.
However, it's important to note that various other factors, such as the company's growth prospects, risk profile, and profit margin could also influence the relative impacts. Thus, while a general statement can be made that a change in discount rate usually affects valuation more, it might not hold true for every situation.