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A series, or stream, of cash flows may not always necessarily be an annuity. Cash flows can also be uneven and nonconstant, but the concept of the time value of money applies to uneven cash flows as well.
Consider the following case:
Swanky Beverage Co. expects the following cash flows from its manufacturing plant in Palau over the next 6 years:
YearAnnual Cash Flows
1- $4,700,000
2- $2,600,000
3- $5,000,000
4- $4,400,000
5- $4,550,000
6- $2,500,000
Question 1: The CFO of the company believes that an appropriate annual interest rate on this investment is 6%. What is the present value of this uneven cash flow stream (rounded to the nearest whole dollar)?
Option 1: $19,593,687
Option 2: $16,150,000
Option 3: $23,750,000
Option 4: $20,162,087
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