Consider the following case The Purple Lion Beverage Company

Consider the following case: The Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next three years: Annual Cash Flows Year 1 Year 2 Year 3 s250,000 $37,500 $330,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 9%, what is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? O $515,742 O $1,992,500 o $1,625,000 O $617,500 Identify whether the situations described in the following table are examples of uneven cash flows or annuity payments: Annuity Payments Uneven Description Cash Flows You recently moved to a new apartment and signed a contract to pay monthly rent to your landlord for a year. SOE Corp. hires an average of 10 people every year and matches the contribution of each employee toward his or her retirement fund. Franklinia Venture Capital (FVC) invested in a budding entrepreneur\'s restaurant. The restaurant owner promises to pay FVC 10% of the profit each month for the next 10 years. You have committed to deposit $600 in a fixed interest-bearing account every quarter for four years

Solution

Question 1:

Option - 5,15,742 is correct.

Question 2:

Annuity payments are equal payments over a specified period of time or for unlimited period of time.

Rent is a fixed equal payment (here period is one year), it is an example of Annuity payment.

Each employee contributes a variety of amount, Thus, total amount may differ every year. Thus, it is an uneven cash flow.

Net profit may not be same each month. Thus, 10% share may not be the same every month. Thus, it is an uneven cash flow.

Fixed deposit gives same interest each period. It is an annuity payment.

*Hope the above explanation helps, please comment if further explanation is required. Your rating is appreciated*

Year	Cash flow	Discount factor(9%)	Present value
1	2,50,000.00	0.917431193	2,29,357.80
2	37,500.00	0.841679993	31,563.00
3	3,30,000.00	0.77218348	2,54,820.55
			5,15,741.35