**1. Read problem thoroughly** **2. Create a time line** **3. Put cash flows and arrows on time line** **4. Determine if it is a PV or FV problem** **5. Determine if solution involves a single CF, annuity stream(s), or mixed flow** **6. Solve the problem** **7. Check with financial calculator (optional)** **Steps to Solve Time Value of Money Problems** ** Julie Miller will receive the set of cash flows below. What is the Present Value at a discount rate of 10%.** ** Julie Miller will receive the set of cash flows below. What is the Present Value at a discount rate of 10%.** ** 1. Solve a “***piece-at-a-time*” by discounting each *piece* back to t=0. ** 1. Solve a “***piece-at-a-time*” by discounting each *piece* back to t=0. ** 2. Solve a “***group-at-a-time*” by first breaking problem into *groups of annuity streams* and any *single cash flow groups*. Then discount each *group* back to t=0. **$545.45** **$495.87** **$300.53** **$273.21** **$ 62.09** **$1677.15 = PV0 of the Mixed Flow** **$1,041.60** **$ 573.57** **$ 62.10** **$1,677.27 = PV0 of Mixed Flow [Using Tables]** **$600(PVIFA10%,2) = $600(1.736) = $1,041.60** **$400(PVIFA10%,2)(PVIF10%,2) = $400(1.736)(0.826) = $573.57** **$100 (PVIF10%,5) = $100 (0.621) = $62.10** **Use the highlighted key for starting the process of solving a mixed cash flow problem** **Use the highlighted key for starting the process of solving a mixed cash flow problem** **Solving the Mixed Flows Problem using CF Registry** *Source*: Courtesy of Texas Instruments **Defining the calculator variables****:** **For CF0****: This is ALWAYS the cash flow occurring at time t=0 (usually 0 for these problems)** **For ***Cnn*:* This is the cash flow *SIZE* of the nth group of cash flows. Note that a “group” may only contain a single cash flow (e.g., $351.76). **For ***Fnn*:* This is the cash flow *FREQUENCY* of the nth group of cash flows. Note that this is always a positive whole number (e.g., 1, 2, 20, etc.). *** nn represents the nth cash flow or frequency. Thus, the first cash flow is C01, while the tenth cash flow is C10.** **Solving the Mixed Flows Problem using CF Registry**
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