Variable Cash Flows - Texas Instruments BA II PLUS User Manual

Variable Cash Flows

In annuities, all payments are equal. In variable cash flows,
however, the payments are unequal. You can solve for the
present value of variable cash flows by treating the cash flows
as a series of compound interest payments.
The present value of variable cash flows is the value of cash
flows occurring at the end of each payment period discounted
back to the beginning of the first cash flow period (time zero).
PV = ?
0
Example: Present Value of Annual Savings
The ABC Company is purchasing a machine that will save the
following end-of-year amounts.
Year
Amount
Assuming a discount rate of 10%, does the present value of the
cash flows exceed the original cost of $23,000?
PV = ?
0
44
CF
1
. . .
1
1 2
$5000 $7000 $8000 $10000
$5,000 $7,000
1 2
CF
j-1
NN1
3 4
$8,000
3
BA II PLUS™ Calculator
Cf
j
N
$10,000
N=4