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Home Formulas Dala Review Insert Page Layout x fc M112 B A H D E F G Present Value of uneven Cash Flows 5 6 7 8 9 Find the present value of an uneven cash flow strean 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 year 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 Uneven cash flow: A series of cash flows in which the amount varies from one period to the next. Hint: Unkess told otherwise, assume that cash flows occur at the end of the period! 6 7 9 Finance Concept: PV - CF,/(1+r) + CF,/(1+r) + CF,/(1+r)' Present Value=Sum of the present values of the individual cash flows PV - 500X1+0.07) + 300(1+0.0779 + 100(1+0.07) PV-467.29 +262.03 +81.63 $810.95 In Words: The value today of future cash flows discounted at seven percent is $810.95 Spreadsheet Solution: Use formulas to find your answer by completing this PV Table: Today Year! 7% 1 500 Interest Rate b Time c/Cash Flow d PV interest factor e Present Value 0 Year 2 7% 2 300 Year 3 7% 3 100 First, we must calculate the PV Interest Factor for each cash flow in row d. PVIF = 111+r) In cell F33 enter the formula: 1/(1+F30)^1 and copy to cells G33 and H33 You must change the exponents on cells G33 and 133, 2 Then, we find the PV of each cash flow in tow e. In cell F34 enter the PV formula: CFPVIF - F32*F33 and copy to cells G34 and 134. 3 Lastly, we sum the PVs to get the PV of the annuity in cell E34 In cell E34 enter the formula: sum F34:H34) Interest PV PVCF FVCF ady MS + qizlet B D E G 46 4 Your answer should be: The PV of the uneven cash flows is $810.95 47 48 Note: You can change any of the inputs and Excel will automatically recompute. 49 50 51 52 Test your skills 53 54 What is the Present Value of the cash flow above if the discount rate is 1%? 55 Enter 01 for each interest rate and copy and paste your answer here. 56 Answer: $886.20 8 9 Spreadsheet Solution with the Excel Wtrard: 0 1 Today 2 a Interest Rate 0.07 3 b Time 0 C Cash Flow dPresent Value Year 1 Year 2 Year 3 1 500 2 300 3 100 1. Put the cursor on E65 and click the function wizard 2). click financial, scroll down to NPV and click OK is located on your standard menu bar 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 12. 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 roue box by pointing and clicking Using the NPV formula directly: Use the built-in Excel formula: NPV (rate, CF) Inputs literest PV PVCE FVOF MS Ready Quizlet WE M112 A B D E F G H 76 77 Using the NPV formula directly 78 79 Use the built-in Excel formula: -NPV(rate, CF) 80 81 82 Inputs: 83 rate 0.07 84 cash flows = 500 CF