Contents
Time Value of Money
Annuities
Perpetuities
Kinds of Interest Rates
Future Value of an Uneven Cash flow
Probability Distribution
Standard Deviation
CAPM
Security Market Line
Bond Valuation
Stock Valuation
Cost of Capital
The Balance Sheet
Capital Budgeting
Hall of Fame
Credit Report
Forex
401K
ETFs
Futures
Inflation
IPOs
Mergers
Online Scams
Calculators
Financial Terms
Scientific Terms
Military Terms
Financial Charts
Unemployment
Fuel Mileage
Sports Finance
Energy Efficiency
Japanese
Chinese
हिन्दी
العربية
Espanol
Francias
Portuguese
Disclaimer




Future Value of an Uneven Cashflow

Cash Flow Cash Flow is money you get a little at a time.

Lets say, for example that for the next 4 years you will get the following cash flow.

Cash Flow
in 1 year $ 320
in 2 years $ 400
in 3 years $ 650
in 4 years $ 300


If you assume that the interest rate is 6.5% (which means that after you get the money, it will be invested and you will get 6.5% interest from it), compounded monthly, how much money will you have in 4 years? In other words, what will the future value of this cash flow be?
Compounding Formula FV=PV ( 1 + i / m)mn
  • FV = Future Value
  • PV = Present Value
  • i = Interest rate (annual)
  • m = number of compounding periods per year
  • n = number of years

So you have to figure out the future value of each payment and then add them together.

First Payment

  • FV = PV ( 1 + i / m)mn
  • FV = $320 (1 + .065 / 12 )12 X 3 (three years)
  • FV = $320 (1.0054167)36
  • FV = $320 (1.2146716)
  • FV = $388.69

Second Payment

  • FV = PV ( 1 + i / m)mn
  • FV = $400 (1 + .065 / 12 )12 X 2 (two years)
  • FV = $400 (1.0054167)24
  • FV = $400 (1.1384289)
  • FV = $455.37

Third Payment

  • FV = PV ( 1 + i / m)mn
  • FV = $650 (1 + .065 / 12 )12 X 1 (one year)
  • FV = $650 (1.0054167)12
  • FV = $650 (1.0669719)
  • FV = $693.53

Fourth Payment - ( The payment is not compounded. There no time to earn interest)

  • FV = PV ( 1 + i / m)mn
  • FV = $300 (1 + .065 / 12 )12 X 0(0 years.)
  • FV = $300 (1.0054167)0
  • FV = $300 (1) (remember anything to the power of zero is 1)
  • FV = $300

Finally, add up all the numbers

$ 388.69
$ 455.37
$ 693.53
$ 300.00
----------
$1,837.59

So after 4 years, you will have $1,837.59. That is the future value of your uneven cash flow.








About the author

Mark McCracken

Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English".

Copyright © 1997 - 2009 by Mark McCracken , All Rights Reserved