What are uneven cash flows?

Essentially uneven cash flows apply to a number of unequal payments made within a given period of time. For example, the following annual payments for five years can be obtained: $ 500 USD (USD), $ 300, $ 400, $ 250 and $ 750. On the other hand, if regular payments were set for a specific amount, then the cash flows would be the same. For example, you can receive an annual payment of $ 500, which is also known as the annuity. In addition, uneven cash flows can be associated with various financial situations, including capital budgeting.

In finance, the capital budget is essentially a process of decision -making regarding long -term investments. During this process, managers can use various financial management tools and estimate the value of uneven cash flows associated with a specific investment. This will give them the foundation with which they decide to accept or reject the project.

solid and uneven cash flows are vital elements of valuation of all types of investment.Financial managers use financial formulas to find the current value of a number of future cash flows. This process helps them calculate the real value of the investment. For example, the financial manager can calculate that the current value of the uneven cash flow is $ 1,000. If this current of uneven cash flows was made by the asset, then it may decide that the maximum that is willing to pay for the asset is the current value, which is $ 1,000.

Another example of a series of uneven cash flows is payments received from investing in so -called unconventional bonds. Unlike conventional bonds, also known as vanilla bonds, unconventional bonds do not pay a regular fixed coupon or interest rate. These links include indexed bonds called SO for being linked to the index, such as the consumer price index (CPI), which measures the level of inflation. With these bonds, cash flows reflect changes in the index to which they are connected.

ToIllustration, consider a hypothetical indexed bond with cash flows associated with CPI changes. Suppose that after its release, the bond is paid interest of $ 100. However, in the following year, if the CPI increased by a percentage rate, interest payment would increase corresponding to the appropriate way. For example, it can increase to $ 105. In short, it is quite difficult to estimate cash flows associated with such a bond with certainty, as changes in CPI create uneven cash flows.