Present Value and Future Value of Uneven Cash Flows

Check your understanding

5 questions

1. 1. When calculating the future value of an uneven cash flow series at 8% interest, what is the correct approach for the last cash flow (received at the end of period 5)?
   Discount it back 5 periods using $FV = PV \times (1.08)^5$Compound it forward 5 periods using $FV = PV \times (1.08)^5$Treat it as already at the future point (N = 0), so its FV equals its current valueAverage it with the other cash flows before compounding--
2. 2. Using the cash flows from the lesson (r = 8%), what is the present value of a cash flow of +$1,000 received at the end of period 3?
   $\$1,000 \times (1.08)^3 = \$1,259.71$$\$1,000 \div (1.08)^2 = \$857.34$$\$1,000 \times (1.08)^2 = \$1,166.40$$\$1,000 \div (1.08)^3 = \$793.83$--
3. 3. A cash flow of -$500 occurs at the end of period 1 and another of -$600 at the end of period 2. At 8%, what is their combined present value?
   $-\$1,100.00$$-\$1,040.00$$-\$1,028.40$$-\$977.37$--
4. 4. Which of the following statements correctly describe the method for valuing uneven cash flows? (Select all that apply)
   Each cash flow is treated as an independent single sum and discounted or compounded individually.A single annuity formula can be applied directly if cash flows differ by a constant amount.The total PV or FV is found by summing the individual PVs or FVs of each cash flow.A financial calculator's CF (Cash Flow) worksheet can be used as an alternative method for computing NPV.--
5. 5. The future value of the entire uneven cash flow series in the lesson is $3,350.33. If the interest rate were increased to 10% instead of 8%, what would happen to this future value?
   It would decrease, because higher rates reduce the value of future cash flows.It would remain the same, since the cash flows themselves do not change.It would decrease only for the cash outflows (negative cash flows).It would increase, because positive net cash flows compounded at a higher rate grow larger.