Any financial decisions require the analysis of uneven, or nonconstant, cash flows. (Preferred/Common) stock dividends typically increase over time, and investments in capital equipment almost always generate uneven cash flows. The term cash flow (CFt) denotes (equal/uneven) cash flows, while payment (PMT) designates (equal/uneven) cash flows coming at regular intervals.
One can also find the interest rate of the uneven cash flow stream with a financial calculator and solving for the (net of future value/internal rate of return/net of present value) using the (NFV/IRR/NPV) key.
Quantitative Problem: You own a security with the cash flows shown below.
Year 0: 0
Year 1: 650
Year 2: 365
Year 3: 250
Year 4: 300
If you require an annual return of 12%, what is the present value of this cash flow stream? Round your answer to the nearest cent. Do not round intermediate calculations. $