A Present Value Calculator for Uneven Cash Flows

By Stock Research Pro • February 15th, 2009

Present value refers to the value today of an amount of money in the future. To calculate the present value, that future amount is discounted to reflect the time value of money and investment factors. Both the concept and calculation of present value are important in various financial calculations. Bond yields and pension obligations, for example, rely on the present value principle. In personal finance, a present value calculator can assist with mortgage and other purchase decisions.

An Example of a Present Value Calculation

To illustrate the present value concept, let’s say you expect to receive $100 one year from now and let’s assume an interest (or “discount”) rate of 10%. To arrive at the present value, you would simply divide $100 by 1.10, which gives you a present value of $90.90. If we apply a discount rate of only 5%, then the present value becomes $95.23. A lower discount rate means a higher present value. As you can also see, it is important for the investor to be as accurate as possible in applying an appropriate discount rate as that rate will greatly impact the present value.

Calculating Present Value with Multiple Uneven Cash Flows

Payments from assets such as stocks and bonds are usually not consistent. For example, a company that pays regular dividends to its stock holders may pay a different dividend amount over multiple time periods. As most investors know, past dividend payments offer no guarantee of whether future payments will be offered and in what amounts. To calculate the present value of an asset, each cash flow must be included as a single component in determining the total present value of the asset. The total present value is then arrived at as the sum of these values.

Using the Stock Research Pro Calculator

Using the Stock Research Pro Calculator to Arrive at the Present Value of an Asset that offers Uneven Cash Flows:

(1) Enter the expected cash flow amount for each year of the investment
(2) Enter the discount rate

The calculator then provides the output. You may print your results by clicking on the Print button.

Use the Update button any time you make changes to a calculation or click the Reset button to start over with a new calculation.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

delicious | digg | reddit | facebook | technorati | stumbleupon | chatintamil

Leave a Comment

You must be logged in to post a comment.

« An Introduction to the Forex Market | Home | A Relative Strength Investing Strategy »