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    Mixed Streams: Drew Fayth Mangrobang Angelie Momi Ariane Joyce Arquero

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    Katring O.
    Two basic types of cash flow streams are possible: annuities, which have equal periodic cash flows, and mixed streams, which have unequal periodic cash flows with no particular pattern. Financial managers need to evaluate opportunities providing mixed cash flow streams by determining the streams' future or present value. This involves finding the relevant future or present value interest factor, multiplying it by each cash flow amount, and summing the results. For example, to find a mixed stream's future value after 5 years at 8% interest, one would find each cash flow's future value factor and total them.

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    Mixed Streams: Drew Fayth Mangrobang Angelie Momi Ariane Joyce Arquero

    Uploaded by

    Katring O.
    462 views22 pages
    Two basic types of cash flow streams are possible: annuities, which have equal periodic cash flows, and mixed streams, which have unequal periodic cash flows with no particular pattern. Financial managers need to evaluate opportunities providing mixed cash flow streams by determining the streams' future or present value. This involves finding the relevant future or present value interest factor, multiplying it by each cash flow amount, and summing the results. For example, to find a mixed stream's future value after 5 years at 8% interest, one would find each cash flow's future value factor and total them.

    Original Description:

    Mixed Streams of Cash Flows

    Original Title

    M3-MIXED-STREAMS-2

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    Two basic types of cash flow streams are possible: annuities, which have equal periodic cash flows, and mixed streams, which have unequal periodic cash flows with no particular pattern. Financial managers need to evaluate opportunities providing mixed cash flow streams by determining the streams' future or present value. This involves finding the relevant future or present value interest factor, multiplying it by each cash flow amount, and summing the results. For example, to find a mixed stream's future value after 5 years at 8% interest, one would find each cash flow's future value factor and total them.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    462 views22 pages

    Mixed Streams: Drew Fayth Mangrobang Angelie Momi Ariane Joyce Arquero

    Uploaded by

    Katring O.
    Two basic types of cash flow streams are possible: annuities, which have equal periodic cash flows, and mixed streams, which have unequal periodic cash flows with no particular pattern. Financial managers need to evaluate opportunities providing mixed cash flow streams by determining the streams' future or present value. This involves finding the relevant future or present value interest factor, multiplying it by each cash flow amount, and summing the results. For example, to find a mixed stream's future value after 5 years at 8% interest, one would find each cash flow's future value factor and total them.

    Copyright:

    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 22

    MIXED

    STREAMS
    DREW FAYTH MANGROBANG
    ANGELIE MOMI
    ARIANE JOYCE ARQUERO
    Two basic types of cash flow streams are
    possible:
    Annuity Mixed
    is a pattern of equal is a stream of unequal
    periodic cash flows. periodic cash flows
    that reflect no
    particular pattern.

    Financial managers frequently need to evaluate opportunities that


    are expected to provide mixed streams of cash flows.
    01
    Future
    Value
    OF A MIXED STREAM
    Determining the future value of a
    mixed stream of cash flows is
    straightforward.
    • Get the Number of Years Earning Interest.

    • Calculate the FVIF

    • We determine the future value of each cash flow at


    the specified future date.

    • Then add all the individual future values to find the


    total future value.
    Formula for finding the Future Value
    of a Mixed Stream

    After getting the value of FVIF multiply it to the PRESENT


    VALUE to get the future value
    Example:

    Shrell Industries, a cabinet manufacturer, expects to receive the


    following mixed stream of cash flows over the next 5 years from one
    of its small customers.

    If Shrell expects to earn 8% on its investments, how much will it


    accumulate by the end of year 5 if it immediately invests these cash
    flows when they are received?
    End of year Cash flow Number of Years
    (1) Earning Interest
    (2)
     SOLUTION FOR THE FVIF:

    1 11,500 5-1 = 4

    2 14,000 5-2 = 3

    3 12,900 5-3 = 2 1. = 1.3605

    4 16,000 5-4 = 1 2. = 1.2597

    5 18,000 5-5 = 0 3. = 1.1664

    4. = 1.0800

    5. = 1.0000
    END OF Cash FVIF FUTURE VALUE
    YEAR flow/ PV

    1 11,500 X 1.3605 = 15,645.75

    2 14,000 X 1.2597 = 17,635.80

    3 12,900 X 1.1664 = 15,046.56

    4 16,000 X 1.0800 = 17,280.00

    5 18,000 X 1.0000 = 18,000

    FUTURE VALUE = 83,608.11

    SHRELL WILL ACCUMULATE 83,608.11


    BY THE END OF 5 YEAR
    02
    Present
    OF A MIXED STREAM

    Value
    Finding the present value of a
    mixed stream of cash flows is
    similar to finding the future
    value of a mixed stream.
    • Find the PVIF

    • We determine the present value of


    each future value amount

    • Then add all the individual present


    values together to find the total
    present value…
    Formula for finding the Present Value
    of a Mixed Stream

    After getting the value of PVIF multiply it to the FUTURE


    VALUE to get the present value
    Example:

    Frey Company, a shoe manufacturer; has been offered an opportunity to


    receive the following mixed stream of cash flows over the next 5 years;

    If the firm must earn at least 9% on its investments, what is the


    most it should pay for this opportunity?
      SOLUTION FOR THE PVIF:

    End of year Cash flow Number of Years


    Earning Interest

    1. = 0.9174
    1 400 1
    2. = 0.8417
    2 800 2
    3. = 0.7722
    3 500 3

    4 400 4 4.= 0.7084

    5 300 5 5.= 0.6499


    END OF Cash PVIF PRESENT
    THE flow/ PV VALUE
    YEAR
    1 400 X 0.9174 = 366.96

    2 800 X 0.8417 = 673.36

    3 500 X 0.7722 = 386.10

    4 400 X 0.7084 = 283.36

    5 300 X 0.6499 = 194.97

    PRESENT VALUE = 1,904.75

    THE FIRM SHOULD PAY 1,904.75


    FOR THIS OPPORTUNITY
    03
    EXERCISE
    S
    APPLE Co expects to receive a mixed stream of cash flow over the next 5
    years as follow:

    APPLE Co expects to earn 7% on its investments. So calculate how much


    would ABC Co receive at the end of 5 years to immediately invest such cash
    flows?
    End of year Cash flow Number of Years
    Earning Interest

    1. Find the FVIP of each


    1 10,000 5-1 = 4
    cash flow.
    2 11,000 5-2 = 3
    2. Calculate for the Future
    3 15,000 5-3 = 2 Value
    4 12,000 5-4 = 1

    5 16,000 5-5 = 0
      SOLUTION FOR THE FVIF:
    End of Cash FVIF FUTURE
    Year flow/ VALUE
    PV
    1. = 1.3108 1 10,000 X 1.3108 = 13,108.00
    2 11,000 X 1.2250 = 13,475.00
    2. = 1.2250
    3 15,000 X 1.1449 = 17,173.50
    3. = 1.1449
    4 12,000 X 1.0700 = 12,840.00
    4. = 1.0700
    5 16,000 X 1.0000 = 16,000
    5. = 1.0000 FUTURE = 72,596.50
    VALUE
    Suppose ORANGE Co has been offered an opportunity to receive the future
    cash flow for the next 5 years as follows:
    The relevant discount rate is at 8%. So calculate how much is the present
    value of this stream of cash flow?

    End of year Cash flow Number of Years


    Earning Interest

    1 11,000 1 1. Find the PVIP of each


    2 cash flow.
    2 12,000

    3 14,000 3 2. Calculate for the


    4
    Present Value
    4 16,000

    5 15,000 5
     SOLUTION FOR THE PVIF:

    End of Cash PVIF PRESENT


    the flow/ VALUE
    1. = 0.9259 Year PV
    1 11,000 X 0.9259 = 10,184.90
    2. = 0.8573
    2 12,000 X 0.8573 = 10,287.60
    3. = 0.7938
    3 14,000 X 0.7938 = 11,113.20
    4. = 0.7350 X 0.7350 = 11,760.00
    4 16,000
    5. = 0.6806 5 15,000 X 0.6806 = 10,209.00

    PRESENT = 53,554.70
    VALUE VALUE
    Resources
    ● Future Value of a Mixed Stream Cash Flow | Accounting Hub (accountinghub-online.c
    om
    )

    ● Present Value of a Mixed Stream Cash Flow | Accounting Hub (accountinghub-online.


    com
    )

    ● Principles of Managerial Finance (xn--klker-kva.hu)

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