Simmons

Definition

Simmons is a hypothetical example or case study often used to illustrate the principles of the timing of cash flows in finance. It helps students understand how unequal multiple payments are valued over time using present value and future value calculations.

5 Must Know Facts For Your Next Test

1. Simmons typically involves a series of cash flows that occur at different times and are not equal in amount.
2. The key concept illustrated by Simmons is how to discount each individual cash flow back to its present value.
3. In the Simmons example, understanding the timing and magnitude of each payment is crucial for accurate financial analysis.
4. Calculating Net Present Value (NPV) for Simmons requires summing up all discounted cash flows.
5. The internal rate of return (IRR) can also be derived from the Simmons case by finding the discount rate that sets the NPV to zero.

Review Questions

• How do you calculate the present value of an uneven series of cash flows in the context of Simmons?
• Why is it important to consider both the timing and magnitude of cash flows when analyzing the Simmons example?
• What does calculating NPV tell you about a series of unequal multiple payment values like those in Simmons?

Related terms

Present Value (PV): The current worth of a future sum of money or stream of cash flows given a specified rate of return.

Net Present Value (NPV): A method used in capital budgeting to evaluate investments by considering all incoming and outgoing cash flows discounted at a specific rate.

Internal Rate of Return (IRR): The discount rate that makes the net present value (NPV) of all cash flows from an investment equal to zero.