Explain present value of a series of cash flows, Financial Management

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Q. Explain Present Value of a Series of Cash Flows?

Present Value of a Series of Cash Flows: - In a business circumstances it is very natural that returns received by a firm are spread over a number of years. To approximation the present value of future series of returns the present value of each expected inflow will be calculated.

240_Explain Present Value of a Series of Cash Flows.png

Where PV = total of individual present values of every cash flow

C1, C2, Cn = Cash flows after periods 1,2------n

i= Discounting Rate

Instance: - Given the time importance of money as 10% (that is the discounting factor). You are necessary to find out the present value of future cash inflows that will be received over next four years.

Year

Cash Flows

1

2

3

4

1000

2000

3000

4000

1925_Explain Present Value of a Series of Cash Flows2.png

= 909 + 1652 + 2253 + 2732

= Rs. 7546


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