View Full Version : Cash Flows
icgreen
Nov 18, 2009, 09:32 AM
How do I find the NPV of cash flows that are different in amounts? I'm using sa 10bII Financial Calculator. How do I calculate the NPV with a discount rate, also? Please help.
ArcSine
Nov 18, 2009, 11:09 AM
Unless the non-equal cash flows are a geometric sequence, you'll generally need to PV each amount separately, and then sum. Here's a simple illustration which you can generalize to just about any sequence of cash flows...
Suppose I'm holding an investment which will pay me $135 two years from today, and then $572 five years from today. Just those two payments, and then game over*. Suppose further than the risk-adjusted annual discount rate appropriate for this investment is 14%.
The PV of this investment, as of today, is just \frac{135}{1.14^2} \ + \ \frac{572}{1.14^5} \ = \ 400.96.
*(Don't laugh... such investments do exist. In fact, if you'll loan money to my ex-brother-in-law, then you too can experience the thrill and excitement of holding paper whose cash inflows are erratic and quite infrequent.)
morgaine300
Nov 18, 2009, 09:31 PM
*(Don't laugh...such investments do exist. In fact, if you'll loan money to my ex-brother-in-law, then you too can experience the thrill and excitement of holding paper whose cash inflows are erratic and quite infrequent.)
No thank you. (Sorry, I laughed. Was that not allowed?)
ArcSine
Nov 19, 2009, 06:01 AM
Déjà vu... the guy's banker also said "No thank you" -- and then laughed. :p