Question

The present value of the following cash flow stream is $6200 when discounted 9% annually. What is the value of the missing cash flow?
a) Year 1- $1300
b) Year 2- ?
c) Year 3- $1950
d) Year 4- $2640

Answer 1

Answer:

Cash flow year 3= $1,938.2

Explanation:

Giving the following information:

PV= $6,200 when discounted 9% annually.

Cf:

a) Year 1- $1300

b) Year 2- ?

c) Year 3- $1950

d) Year 4- $2640

To calculate the missing cash flow, we need to use the following formula:

NPV= ∑[Cf/(1+i)^n]

6,200= 1,300/1.09 + x + 1,950/1.09^3 + 2,640/1.09^4

6,200= 1,192.66 + x + 1,505.76 + 1,870.24

Year 3 (PV)= 1,631.34

Cash flow year 3= 1,631.34*1.09^2

Cash flow year 3= 1,938.2