Question
8. 8: Time Value of Money: Uneven Cash Flows Many financial decisions require the analysis of uneven, or nonconstant, cash flows. Common equipment almost
8. 8: Time Value of Money: Uneven Cash Flows Many financial decisions require the analysis of uneven, or nonconstant, cash flows. Common equipment almost always generate uneven cash flows. The term cash flow (CF+) denotes uneven coming at regular intervals. stock dividends typically increase over time, and investments in capital cash flows, while payment (PMT) designates equal cash flows The present value of an uneven cash flow stream is the sum of the PVs of the individual cash flows. The equation is: N PV = CF1 (1+1) + CF2 (1+1)2 CFN CF+ + = (1+1) (1+1)* 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 Internal rate of return (IRR) using the IRR Quantitative Problem: You own a security with the cash flows shown below. 2 3 0 630 375 260 290 key. 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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