CMA Intermediate · Financial Management and Business Data Analytics · Time Value of Money
Kavya Textiles expects cash inflows of ₹20,000 at the end of Year 1, ₹30,000 at the end of Year 2 and ₹50,000 at the end of Year 3. Using a discount rate of 10% p.a. (PV factors: 0.909, 0.826, 0.751), what is the present value of these uneven cash flows?
Present value of uneven cash flows is found by multiplying each year's cash flow by its own discount factor and adding. Here 18,180 plus 24,780 plus 37,550 equals ₹80,510, well below the undiscounted ₹1,00,000.
- A₹80,510Correct
- B₹1,00,000
- C₹78,510
- D₹82,510
Explanation
PV = 20,000×0.909 + 30,000×0.826 + 50,000×0.751 = 18,180 + 24,780 + 37,550 = ₹80,510. Option ₹1,00,000 is the undiscounted total, ignoring time value of money.
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