ABSTRACT
Finding the present value of the cash flows occurring in years 4 – 8 is
slightly challenging and will be calculated in two stages. Firstly, the annuity
table will be used as normal to find the present value of the five annual cash
flows. However, as the annuity table has been compiled on the basis that the
first cash flow occurs in one year’s time, the answer provided will represent
the value of the cash flows one year before the first cash flow occurs, i.e., at
year 3. Consequently we will then have to discount the amount back over a
three-year period using the PV table (we use the PV table as, at this point, we
will be dealing with a $ value stated at one point in time).
