## Timing of Cash Flows
### The Concept
Cash flows can arise either at the beginning or at the end of each year. This is called the "Timing of Cash Flows", and it plays a crucial role in computing present value — the same cash flows can have different present values purely because of when within the period they occur.
### Two Classifications
Based on their timing, cash flows are broadly classified into two:
- End-of-period cash flows (ordinary annuity) — the default assumption in most problems; cash flow occurs at the end of each year.
- Beginning-of-period cash flows (annuity due) — cash flow occurs at the start of each year, so each flow is discounted for one fewer period.
### Why It Matters
Because a beginning-of-year cash flow is received one period earlier than an end-of-year cash flow, it is discounted less heavily and therefore has a higher present value. Always read the question carefully to establish when each cash flow arises before discounting — an incorrect timing assumption changes the entire answer.