Present Value of Uneven Periodic Sum - DCF Technique

As in investment decisions it is very rare to acquire even periodic returns and in most cases a company will generate a stream of uneven cash inflows from a venture and so the current value of those types of uneven periodic sums is equivalent to as:

Pv = A₁ / (1+k)¹ + A₂ / (1+K)² +A₃/(1+K)³ + ..... +A_N / (1+K) ^N

Equation is as:

Whereof:    A_t = Uneven cash inflows at time t

                   P_v = current value

                   K   =Cost of finance

A company contemplates to receive Shs.:

20,000 in year 1

18,000 in year 2

24,000 in year 3

Nil      in year 4

40,000 in year 5

Cost of this finance is 12percent

Required

Calculate present value of that finance

Solution

Pv = 30,000 (1+12)¹ + 18,000 / (1+12)² +24,000/(1+12)³ + 40,000 / (1.12)⁵

= 80,915.004