Present Value of Multiple Cash Flows
We come across many cases where we have to determine the present value of series of multiple cash flows. There are two ways we can calculate present value of multiple cash flows. Either we discount back individual cash flow at a time, or we can just calculate the present values individually and add them up.
Suppose if we want $10,000 in one year and $15,000 more in two years. If we can earn 8% on this money, how much we need to invest today to exactly earn this much in the future? In other words, what is the present value of two cash flows at 8%.
Present value of $15,000 in 2 years at 8 percent is:
Present value of $100 in 1 years at 8% is:
The total present value is :