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Fin 534 Financial Management

In: Business and Management

Submitted By KaroonKarooneh
Words 1388
Pages 6
1. What is the present value of the following uneven cash flow stream −$50, $100, $75, and $50 at the end of Years 0 through 3? The appropriate interest rate is 10%, compounded annually. In order to calculate the present value of uneven cash fellow, I would like to identify what is the present value for uneven cash flow means? Although the return or the payment of these cash flow is usually regular, the amounts in most cases is different from period to other period .when we need to determine the present value of certain asst, we cannot use the standard formula, Because using the standard formula assumes that the payment is equal in each period and this now a nurture of the cash flow. The present value of an annuity formula assumes equal cash flows at each time period. However, sometimes cash flows are not even. Learn how to use a formula to calculate the present value of uneven future cash flows. An annuity is an asset that will pay equal amounts of money at regular time periods over its life. Essentially, an annuity can be thought of as a security with equal expected cash flows usually paid annually, semi-annually, quarterly, or monthly. The payment of dividends or payments from a lawsuit settlement are typical annuities. However, expected future cash flows from a security with the uncertainty of market and economic conditions rarely follow such a regular schedule. (Garger &Patsalides, 2010).
Now after we exposed to different opinion to uneven present cash flows, we will start solving the problem which was given in Homework. We will use this equation to determine the present value to uneven cash flows,

CF CF =

CF -$50 + $100 + $75 + $50 Interest 10% %10 %10 %10

PV = - 50 90.0901 61.9835 37.657

NPV = $140.46

FV= PV + (interest)× PV

FV= PV +

2.…...

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