Present Value of Uneven Cash Flows

John is evaluating an investment that will provide him with uneven cash flows over the next three years. The expected cash flows are as follows:

Year 1: $1,000

Year 2: $1,500

Year 3: $2,000

If John applies a discount rate of 5% per year, what is the present value of these cash flows?

The present value can be calculated using the formula:

$$ PV = rac{C_1}{(1 + r)^1} + rac{C_2}{(1 + r)^2} + rac{C_3}{(1 + r)^3} $$

where:

• $$ PV $$ = Present Value
• $$ C $$ = Cash Flow in each year
• $$ r $$ = discount rate
• $$ t $$ = year