Uneven Cash Flow Financial Calculator

Uneven Cash Flow Formulas:

\[ NPV = \sum_{t=0}^{n} \frac{CF_t}{(1 + r)^t} \]
\[ \text{IRR: } \sum_{t=0}^{n} \frac{CF_t}{(1 + IRR)^t} = 0 \]

Net Present Value (NPV):

Internal Rate of Return (IRR):

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1. What is Uneven Cash Flow Analysis?

Uneven cash flow analysis evaluates investments or projects with varying periodic cash flows. Unlike annuities with equal payments, real-world investments often have irregular cash inflows and outflows.

2. How Does the Calculator Work?

The calculator uses two key financial formulas:

\[ NPV = \sum_{t=0}^{n} \frac{CF_t}{(1 + r)^t} \]
\[ \text{IRR: } \sum_{t=0}^{n} \frac{CF_t}{(1 + IRR)^t} = 0 \]

Where:

\( CF_t \) — Cash flow at time period t
\( r \) — Discount rate (required rate of return)
\( n \) — Number of periods
\( NPV \) — Net Present Value
\( IRR \) — Internal Rate of Return

Explanation: NPV calculates the present value of all future cash flows. IRR is the discount rate that makes NPV equal to zero.

3. Importance of NPV and IRR

Details: These metrics are fundamental for capital budgeting decisions. NPV shows absolute value added, while IRR shows percentage return. A project is generally accepted if NPV > 0 or IRR > required rate of return.

4. Using the Calculator

Tips: Enter discount rate as percentage (e.g., 10 for 10%). For cash flows, use comma-separated values with negative values for outflows (e.g., "-1000,300,400,500").

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between NPV and IRR?
A: NPV measures absolute dollar value added, while IRR shows the break-even rate of return. They may give conflicting results for mutually exclusive projects.

Q2: Why might IRR calculation fail?
A: IRR may not exist for unconventional cash flows (multiple sign changes) or may give multiple solutions. The calculator uses Newton-Raphson method which may not always converge.

Q3: How should I interpret negative NPV?
A: Negative NPV suggests the investment would destroy value at the given discount rate. Positive NPV indicates value creation.

Q4: What's a good discount rate to use?
A: Typically the company's weighted average cost of capital (WACC) or a risk-adjusted hurdle rate appropriate for the project's risk level.

Q5: Can I use this for loan calculations?
A: Yes, for loans with irregular payments. Enter the principal as negative (outflow) and payments as positive values.