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    icgreen's Avatar
    icgreen Posts: 3, Reputation: 1
    New Member
    		  
    #1

    Nov 18, 2009, 09:32 AM
    Cash Flows
    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's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #2

    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

    *(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's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #3

    Nov 18, 2009, 09:31 PM
    Quote Originally Posted by ArcSine View Post
    *(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's Avatar
    ArcSine Posts: 969, Reputation: 106
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    #4

    Nov 19, 2009, 06:01 AM
    Déjà vu... the guy's banker also said "No thank you" -- and then laughed. :p
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