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

Annual Cash Flows

Year $1$

Year $2$

Year $3$

$$400,000$ $$37,500$ $$180,000$

The CFO of the company believes that an appropriate annual interest rate on this investment is $9\%.$ What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar?

$$617,500$

$$1,750,000$

$$1,967,500$

$$537,528$

Identify whether the situations described in the following table are examples of uneven cash flows or annuity payments:

Description

Uneven Cash Flows

Annuity Payments

Shania bought a new dress for her brother$$s wedding for $$450.$ She negotiated a deal with the retailer in which she would pay for the dress in three installments of $$250,$ $$100,$ and $$100$ over the next three months.

You signed up to make a monthly payment of $$10$ for one year for a lifetime tosubscription to your favorite magazine.

British consols are British government bonds that promise to make payments of a specified amount at regular intervals to the bearer forever.

You receive interest earnings from variable deposits in a regular interest$-$bearing savings account.