Present Value of Uneven Cash Inflows Having Annuity
It may be noted that the present values (PV) of Rs 2,00,000 and Rs 1.50,000 (uneven cash flows) received at the end of the first and second years respectively are to be determined will reference 10 Table A-3. ,The present value of subsequent "ash inflows of Rs. 1,00,000 each for 8 years is
found in Table A-4. The value of an annuity of Rs 1,00,000 for 8 years is found to be Rs 5,33,500. The most important point to note here is that Rs 5.33.500 is the present value at the beginning of the third year (end of year 2). Therefore, its present worth in time period would obviously be less than Rs 5.33,500. This amount would have 10 be discounted back for two years at 10 percent,
The present value factor for 2 years at 10 per cent discount is 0.826. Multiplying this sum by Rs 5.33,500 we get Rs 4,40,671. When the present values of the first two payments are added to the present value of the annuity component. we obtain the sum of the- present value of the entire investment. For a better understanding of the problem, a graphic representation of the procedure of calculating the present value (PV) of such a problem.
Graphic Presentation of Present Value of Mixed Streams