MODULE 4

MIXED

STREAMS
Two basic types of cash flow streams are possible, the
annuity and the mixed stream.

Annuity – is a pattern of equal periodic cash flows.

Mixed streams – is a stream of unequal periodic

cash flows that reflect no particular pattern.

We will calculate the future value and present value of

mixed steams.
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

1 11,500
2 14,000
3 12,900
4 16,000
5 18,000
If Shrell expects to earn 8% on its investments, how
much will it accumulate by the end of year 5 if it
immediately invests these cash flows when they are
received?

End of Year Cash flows Future Value

1 11,500 15,645.62
2 14,00 17,635.97
3 12,900 15,046.56
4 16,000 17,280.00
5 18,000 18,000.00
Future Value 83,608.15
Present Value of a Mixed Stream

Finding the present value of a mixed stream of cash flows

is similar to finding the future value of a mixed stream.
We determine the present value of each future value
amount and then add all the individual present values
together to find the total present value.
Example:

Frey Company, a shoe manufacturer; has been

offered an opportunity to receive the following mixed
stream of cash flows over the next 5 years;

End of year Cash flow

1 400
2 800
3 500
4 400
5 300
If the firm must earn at least 9% on its investments,
what is the most it should pay for this opportunity?

End of year Cash flows Present Value

1 400 366.97
2 800 673.34
3 500 386.09
4 400 283.37
5 300 194.98
Present Value 1,904.75