Present Value of a Series of Equal and Unequal Cash Flows

Question 1

What is the formula to calculate PV of a Series of Equal CF’s?

Answer 1

PV = A[1 - 1/(1+R)^N] / R

Question 2

What is important to remember when solving for equal or unequal CF?

Answer 2

To pay attention to what (t=?) equals to. Whether it is an annuity, ordinary, due, perpetuity etc…

Question 3

For calculating a series of unequal cash flows we can use a “special” mode which is called CF (cash flow) on our calculator. How do we get it into the right mode?

Answer 3

We press -> CF -> 2nd+Clear (to clear all data from before)
C01= first cash flow -> Enter (to set it in place)
Skip F01 (frequency)
Double arrow down
C02= …
Than press NPV
I = interest rate -> Enter
Arrow down
NPV -> CPT (compute)

Question 4

How do we compute for the PV of a Series of Unequal CF’s?

Answer 4

We first compute the present value (t=0) of each individual cash flow at the rate given.

After we compute all of the unequal cash flows and their present values, we can find the future value by using a single payment future value formula of FV=PV(1+r)^n