Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its...
Consider the following case:
The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next six years:
Annual Cash Flows
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 |
| $400,000 | $37,500 | $480,000 | $450,000 | $550,000 | $375,000 |
The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar?
Homework Answers
| [Year] | 1 | 2 | 3 | 4 | 5 | 6 |
| Annual cash flows | $ 4,00,000 | $ 37,500 | $ 4,80,000 | $ 4,50,000 | $ 5,50,000 | $ 3,75,000 |
| PVIF at 4% [PVIF = 1/1.04^t] | 0.96154 | 0.92456 | 0.88900 | 0.85480 | 0.82193 | 0.79031 |
| PV at 4% | $ 3,84,615 | $ 34,671 | $ 4,26,718 | $ 3,84,662 | $ 4,52,060 | $ 2,96,368 |
| PV of the uneven stream = | $ 19,79,094 |
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