Introduction to Corporate Finance

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

PV = $19,047.58

$4,000 $8,000 $5,000 $4,000 $3,000

$3,669.73

$6,733.44

$3,860.92

$2,833.70

$1,949.79