Question

Please show calculations

What is the present value of the following uneven cash flow stream? The appropriate interest rate is 10% compounded annually.

0 -------------- 1 ----------- 2 ------------ 3 ---------------- 4 ----------

$0------------$100--------$300---------$300-------------$(50)-------

Answer 1

Let the cash flows in Year n be denoted by CFn

Given,

CF0 = 0
CF1 = 100
CF2 = 300
CF3 = 300
CF4 = -50

Interest Rate = r = 10%

Present Value = CF0 + CF1/(1+r) + CF2/(1+r)² + CF3/(1+r)³ + CF4/(1+r)⁴

= 0 + 100/(1+0.10) + 300/(1+0.10)² + 300/(1+0.10)³ - 50/(1+0.10)⁴

= $530.09