3: The Time Value of Money
example
FIGURE 3.10 PRESENT VALUE OF A FIVE-YEAR MIXED STREAM DISCOUNTED AT 9%
The present value of the mixed stream is the sum of the present values of the individual cash flows discounted at the 9%
rate. The present values of the individual cash flows shown at the end of the arrows are summed to find the $19,047.58
present value of the stream of cash flows.
Calculator
Input Function
2nd CLR TVM
CLR WORK
CF
2nd
–4,000 ENTER
Solution 19,047.58
–8,000 ENTER
–5,000 ENTER
–4,000 ENTER
–3,000 ENTER
NPV
CPT
(^9) ENTER
Formula B8:
=NPV(B6,B1,B2,B3,B4,B5)
Net present value $19,047.58
Cash flow 3
9%
5
–$4,000
–$8,000
–$5,000
Cash flow 2
Cash flow 1
Row
Column
Spreadsheet
1
2
3
(^4) Cash flow 4 –$4,000
5 Cash flow 5 –$3,000
6 Interest
8
9
A B
7 Number of periods
0 1 2 3 4 5
End of year