Present value of uneven periodic sum - dcf technique, Finance Basics

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 = A1 / (1+k)1 + A2 / (1+K)2 +A3/(1+K)3 + ..... +AN / (1+K) N

Equation is as:

1899_Present Value of Uneven Periodic Sum - DCF Technique.png

Whereof:    At = Uneven cash inflows at time t

                   Pv = 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

Posted Date: 1/31/2013 12:39:15 AM | Location : United States







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