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Will digital pre-amp mode reduce the audio quality/resolution on the 851N?

The signal resolution and audio quality is not reduced or degraded if using the optional digital pre-amp mode.

The volume control used in the DSP is implemented in floating point arithmetic. As such, a multiplication of the input signal by a gain factor (which is what the volume control is) does not change the dynamic range of the signal. This is one of the advantages of floating point. Hence the digital attenuation will not reduce signal resolution for subsequent DSP computations which are also done in floating point.

When the data is sent to the DACs, the signal needs to be converted back to fixed point and some resolution loss may occur at this point if the signal has been attenuated. However, the noise floor of the DSP algorithms being very low (-160dB and lower), the possible loss of resolution due to fixed point conversion for the DACs at normal listening levels should not have any audible impact.

Also to be noted is that the noise floor of the DACs will be higher than the noise floor of the DSP's algorithm's output, hence noise performance at lower levels is mainly limited by the DACs.

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