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Below is an example of an uneven cash flow problem. In an uneven cash flow problem...

Below is an example of an uneven cash flow problem. In an uneven cash flow problem the cash flows occur over time, but they are not equal and they are not necessarily periodic like an annuity. These type of problems can be solved by discounting or compounding each value as appropriate and summing the result together. Spreadsheets and certain functions in a calculator can also be used to facilitate the calculation. It is expected that you can compute simple examples of uneven cash flow problems using basic TVM functions.

A business investment has the following expected cash flows:

  Year    Cash Flows

  1          $10,000

  2          $24,491

The discount rate is 7 percent. What is the investment’s present value?

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Answer #1

Present value = 10,000 / (1 + 0.07) + 24,491 / (1 + 0.07)2

Present value = 9,345.794 + 21,391.388

Present value = $30,737.18

You can also find this using a financial calculator:

CF0 0

CF01 10000 F01 1

CF02 24491 F02 1

CLICK NPV

I 7

CPT

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