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Present Value of Cash Flows

Present Value of Cash Flows

In financial analysis, we often come across uneven cash flow streams. Like, the cash flow stream associated with a capital investment project is typically uneven. As, the dividend stream associated with an equity share is usually uneven and perhaps growing.
present value of cash flows. cash flow formula. discounted cash flow analysis. present value of future cash flow. cash flow diagram calculate present value of cash flows formula stream.

Cash Flow Formula

The present value of a cash flow stream -both uneven or even can be calculated with the help of the following cash flow formula:
present value of cash flows. cash flow formula. discounted cash flow analysis. present value of future cash flow. cash flow diagram calculate present value of cash flows formula stream.
PVn=A1/(1+r) +A2/(1+r)2 +A3/(1+r)3+……+An/(1+r)^n 

So the present value of a cash flow stream is,

 

PVn= At/(1+r)t

 

where  

PVn = present value of a cash flow stream

At = cash flow occurring at the end of year t

r = discount rate

t = duration of the cash flow stream present value of cash flows. cash flow formula. discounted cash flow analysis. present value of future cash flow. cash flow diagram calculate present value of cash flows formula stream.

Following Table shows the calculation of the present value of an uneven cash flow stream, using a discount rate of 12%
.
.
year
cash flow
PVIF12% n
present value of individual cash flow
1
1000
0.893
893
2
2000
0.797
1594
3
2000
0.712
1424
4
3000
0.636
1908
5
3000
0.567
1701
6
4000
0.507
2028
7
4000
0.452
1808
8
5000
0.404
2020
Total=13376
.
.
.
Present VAlue of Cash Flow
present value of cash flows. cash flow formula. discounted cash flow analysis. present value of future cash flow. cash flow diagram calculate present value of cash flows formula stream.

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