Question

what are the three basic patterns of cash flow? choose one to define and explain how to calculate the future and present value of the cash flow that you select

Answer 1

The three basic patterns of cash flow are :

-A single stream of cash flow

-An annuity

-A mixed stream

Single stream of cash flow-

A single stream of cash flow is a single amount that is correctly invested or is expected in the future.

Future value refers to the amount that shall be obtained after a period of time for a single cash flow. To calculate the future value of a single stream,multiply the compunded stream of cash flow each year by the (1+r)where r is the interest rate.

The present value of a cash flow means how much the cash flow will be worth today. To calculate the present value of a cash divide the cash flow by the discounting factor at the prevailing interest rate at the number of years where you expect the cash flow to be received.