Many financial decisions require the analysis of uneven, or nonconstant, cash flows. stock dividends typically...
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Many financial decisions require the analysis of uneven, or nonconstant, cash flows. stock dividends typically increase over time, and investments in capital equipment almost always generate uneven cash flows. The term cash flow (CF) denotes cash fiows, while payment (PMT) designates cash flows coming at regular intervals. The present value of an uneven cash flow stream is the sum of the PVs of the individual cash flows, The equation is: PV=(x+1)2CF1+(1+1)2CF3++(1+1)3CF1=i=1N(1+I)4CFf Similarly, the future value of an uneven cash flow stream is the sum of the FVs of the individual cash flows. Many calculators have an NFV key that lets you obtain the FV. However, if your calculator doesn't have a net future value (NFV) key, you can calculate the NFV as follows: NFV=NPV(1+I)N One can also find the interest rate of the uneven cash flow stream with a financial calculator and solving for the key. Quantitative Problem: You own a security with the cash flows shown below. If you require an annual return of 12%, whot is the present value of this cash flow stream? Do not round intermediate calculations. Round your answer to the nearest cent. 5
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