9.10: Video Activity

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Calculate the Present Value for Multiple Cash Flows

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Provide a practical example from your own personal financial management of why an understanding of the present value of future cash flows would be important.

You expect to receive $10,800 one year from now, $17,400 two years from now, nothing at the end of the third year, and $24,000 four years from now. If you discount all of your cash flows at 7%, then with annual compounding, what are these future cash amounts worth to you in total today?

Future Value of Uneven Cash Flows

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Using Excel, determine the future value of this series of expected unequal receipts five years from now if each payment is received at the end of each year, beginning one year from now, and the interest rate is 6% compounded annually.

End of year 1: $3,800
End of year 2: $4,400
End of year 3: $5,100
End of year 4: $5,800

When using Excel’s built-in Future Value function, why does Dr. Konners enter dollar amounts as negative numbers?