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Unformatted text preview: –4, respectively?
4–10 What is a perpetuity? How can the present value interest factor for such a
stream of cash flows be determined? LG4 mixed stream
A stream of unequal periodic
cash flows that reflect no particular pattern. Mixed Streams
Two basic types of cash flow streams are possible: the annuity and the mixed
stream. Whereas an annuity is a pattern of equal periodic cash flows, a mixed
stream is a stream of unequal periodic cash flows that reflect no particular pattern. Financial managers frequently need to evaluate opportunities that are
expected to provide mixed streams of cash flows. Here we consider both the
future value and the present value of mixed streams. Future Value of a Mixed Stream
Determining the future value of a mixed stream of cash flows is straightforward.
We determine the future value of each cash flow at the specified future date and
then add all the individual future values to find the total future value.
EXAMPLE Shrell Industries, a cabinet manufacturer, expects to receive the following mixed
stream of cash flows over the next 5 years from one of its small customers.
End of year Cash flow...
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