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puteri [66]
3 years ago
13

A series of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and variable in amount, but the c

oncept of the time value of money will continue to apply. Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next five years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 $250,000 $37,500 $180,000 $300,000 $550,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 6.5%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar
Business
1 answer:
devlian [24]3 years ago
6 0

Answer:

$1,051,448

Explanation:

Present value is the sum of discounted cash flows.

present value can be calculated using a financial calculator

Cash flow in year 1 =  $250,000

Cash flow in year 2 = $37,500

Cash flow in year 3 =  $180,000

Cash flow in year 4 =  $300,000

Cash flow in year 5 =  $550,000

I = 6.5%

Present value = $1,051,448

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute  

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Download xlsx
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