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5. Time Value of Money: Uneven Cash Flows Many financial decisions require the analysis of uneven, or nonconstant, cash flows. investments in capital equipment almost

image text in transcribed 5. Time Value of Money: Uneven Cash Flows Many financial decisions require the analysis of uneven, or nonconstant, cash flows. investments in capital equipment almost always generate uneven cash flows. The term cash flow (CFt) denotes (PMT) designates cash flows coming at regular intervals. stock dividends typically increase over time, and cash flows, while payment The present value of an uneven cash flow stream is the sum of the PVs of the individual cash flows. The equation is: PV=(1+I)1CF1+(1+I)2CP2++(1+I)NCFN=t=1N(1+I)tCFt 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 using the key. Quantitative Problem: You own a security with the cash flows shown below. If you require an annual return of 12%, what is the present value of this cash flow stream? Do not round intermediate calculations. Round your answer to the nearest cent. $

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