Present Value of Uneven Periodic Sum - DCF Technique
As in investment decisions it is very rare to acquire even periodic returns and in most cases a company will generate a stream of uneven cash inflows from a venture and so the current value of those types of uneven periodic sums is equivalent to as:
Pv = A_{1} / (1+k)^{1} + A_{2} / (1+K)^{2} +A_{3}/(1+K)^{3} + ..... +A_{N} / (1+K)^{ N}
Equation is as:
Whereof: A_{t} = Uneven cash inflows at time t
P_{v} = current value
K =Cost of finance
A company contemplates to receive Shs.:
20,000 in year 1
18,000 in year 2
24,000 in year 3
Nil in year 4
40,000 in year 5
Cost of this finance is 12percent
Required
Calculate present value of that finance
Solution
Pv = 30,000 (1+12)^{1} + 18,000 / (1+12)^{2} +24,000/(1+12)^{3} + 40,000 / (1.12)^{5}
= 80,915.004