A B C D E G H N o 7 8 9 Find the present value of an uneven cash flow stream invested for various compounding periods and at different discount rates. The Problem RST Corporation has the opportunity to purchase a CNC machine that promises cash flows of $500 in your 1. $300 in year 2, and $100 in year 3. The interest rate is 7% What is the present value of the cash flows from this machine? 10 11 12 13 14 15 Uneventh flow. A series of cash flows in which the amount varies from one period to the next Hint Unless told otherwise, assume that cash flows occur at the end of the period 16 17 Finance Concept: P =CF/(1+r) + CF/(1+r) + CF/(ar) 19 Present Value Sum of the present values of the individual cash flows 20 PV-500 (1+007) 300 (14 007) + 100+ 0.07) 21 PV = 467 29 +262.03 + 8163 = $81095 22 23 In Words: The value today of future cash flows discounted at seven percent is $810.95 24 25 Spreadsheet Solution: 28 27 Use formulas to find your answer by completing this PV Table: 28 29 Today Year 1 Year 2 Year 3 30 a Interest Rate 7% 7% 31 blue 0 2 3 32 e Cash Flow 500 300 100 33 d PV interest factor 34 e Present Value 35 36 1 First, we must calculate the PV Interest Factor for each cash flow in rowd PVIF = 1/(1+r) 37 In cel F33 enter the formula: - 1/(1+F30) 1 and copy to cells G33 and 33 38 You must change the exponents on cells G33 and 33 39 40 2 Then, we find the PV of each cash flow in rowe. 41 In cell F4 enter the PV formula: CFPVIF F32 F33 and copy to cells G34 and 134. You must change the exponents on cells G33 and 33 2 Then we find the PV of each cash flow in rowe In cell F34 enter the PV formula CF-PVIF F32 F33 and copy to cells 3 Lastly, we sumn the PVs to get the PV of the annuity in cell E34. In cell E34 enter the formula: =sum(F34:134) 4 Your answer should be. The PV of the uneven cash flows is $810.95 Note: You can change any of the inputs and Excel will automatically recompute. est your skills What is the Present Value of the cash flow above if the discount rate is 1%? Enter 01 for each interest rate and copy and paste your answer here. Answer $886.20 preadsheet Solution with the Excel Wizard: Year 1 Year 2 Year 3 Today 0.07 0 alInterest Rate Time Cash Flow d Present Value 1 500 21 300 3 100 1. Put the cursor on E65 and click the function wizard ().click financial se down to NPV and click OK W is located on your standard menu bar INPV is the Net Present Value because some of the cash flows may be negative NI V is also for cash flows that are not constant read me Tutorial 3 + Type here to search MA NAD NPV is the Net Present value because some of the cash flows may be negative NPV is also for cash flows that are not constant 2. The dialog box will appear. Enter E62 or 07 for the Rate and the range of cells containing the cash flows. F64 H64, for value 1. Click OK Note: You can also enter each cash flow in a separate value box by pointing and clicking he NPV formula directly: Use the built-in Excel formula NPV(rate, CF) Inputs rate 0.07 cash flows SOO 300 100 CF CF CF CF in year 1
