The document discusses calculating the present value of uneven cash flows. It provides a formula to calculate the present value of cash flows that vary in amount and timing over multiple periods. The formula discounts each cash flow back to the present period using the discount rate. An example applies the formula to calculate the present value of a company's uneven cash flows over 5 years as $6,843.27.

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Present Value of Uneven Cash Flows

2. 1. Introduction
2. Formula
3. Example
4. Reference
Content

3. In the real world, for an active business, there is no certainty of the amount or the timing of cash flows. This means a
cash flow of one year would not be the same as of other years and can vary month on month, year on year, and so on.
This variation or fluctuation in regular cash flow is referred to as uneven cash flows. In order to get an accurate picture
of a business, we need to calculate the present value of uneven cash flows.
Introduction

4. Following is the formula to calculate the PV of uneven cash flows:
PV =
𝐶𝐹0
(1+𝑟)0 +
𝐶𝐹1
(1+𝑟)1 +
𝐶𝐹2
(1+𝑟)2 +……. +
𝐶𝐹𝑛
(1+𝑟)𝑛
Where, CF = Cash flows at different periods
r = Discounting rate
n = Number of period
Formula

5. The cash flows of Company A for next five years are $1,500; $1,850; $2,100; $2,500 and $2,950. Assume the discount rate
is 15.75%. Now, calculate the PV of these uneven cash flows.
Putting the values as per the formula above
PV = [$1,500/(1+15.75)^1] + [$1,850/(1+15.75)^2] + [$2,100/(1+15.75)^3] + [$2,500/(1+15.75)^4] +
[$2,950/(1+15.75)^5]
PV = $1,295.90 + $1,380.80 + $1,354.12 + $1,392.69 + $1,419.77
So, the present value of the uneven cash flows is $6,843.27.
Example

6. Reference
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https://efinancemanagement.com/investment-decisions/present-value-of-uneven-cash-flows