Present value of series of cash flows
In capital budgeting decisions when the cash flows comes in, in different time periods.Then in that case we determine the present value of each future payments and then aggregate them to find the total present value of the stream of the cash flows.
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Terms to remember:-
- Annuity:- An annuity is a fixed cash flow paid to someone each year. Bond,equity or any other investment that offers an investor a regular cash inflow each year can be valued with the help of present value of annuity.
- Perpetuity:- An annuity that goes on forever.
- Future value of Annuity:- Banks,SIP,RDs offer recurring investment schemes. If an investor opts for such a scheme, he would be required to calculate what would be the value of his investment over a period of times.
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