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Question

, nu Assignment 05. Tr e Vald|Midap Cengage les x which Of The Following Ar which of The Follow https:/ nbuveoindex.htmideploymentld-55165 12219604121064589711361 MINDTAP HW 04 - Time Value of Money 10. Uneven cash flows 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 six years: Annual Cash Flows Year 1 Year 2 Year 3 Year 4 Years Year 6 $100,000 $37,500 $180,000 $450,000 $750,000 ss50,000 The CFO of the company believes that an appropriate annual interest rate on of this uneven cash flow stream, rounded to the nearest whole dollar? this investment is 6s%, what is the present value O $2,067,500 $1,850,000 $317,500 O $1,550,112 identify whether the situations described in the following table are examples of uneven cash flows or annuity puy O Type here to search

Explanation / Answer

1) Present value of a cash flow can be computed as -

PV = Amount / (1 + r)n

where, r = rate of interest, n = no. of years

Present value of uneven cash flows = [ $100,000 / (1 + 0.065)1 ] + [ $37,500 / (1 + 0.065)2 ] + [ $180,000 / (1 + 0.065)3 ] + [ $450,000 / (1 + 0.065)4 ] + [ $750,000 / (1 + 0.065)5 ] + [ $550,000 / (1 + 0.065)6 ]

or, Present Value = $1,550,112

2) Annuity : Equal amounts at equal intervals like monthly, quarterly, yearly etc

Uneven cash flow : everything else

i) Uneven

ii) Annuity

iii) Annuity

iv) Uneven - Even though these are at regular intervals, these can vary a lot depending on the deposit amount.

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