Answer to Question #254078 in Management for CALLISTO

Question

To find the present value of an uneven series of cash flows, you must find the PVs of the individual cash flows and then sum them. Annuity procedures can never be of use, even when some of the cash flows constitute an annuity, because the entire series is not an annuity. True or false? Explain.

Answer 1

True. We can only use the annuity procedure when the cash flows are uniform across the periods. Uneven cash flows require calculating each period's present value then you sum up since everything is different except the interest rate but for the annuity, monthly or yearly cash flows are the same, the interest rate the same and time period also are the same.