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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 + ..... +AN / (1+K) N
Equation is as:
Whereof: At = Uneven cash inflows at time t
Pv = 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
analysing ratios
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