Question

Lipper Group has a project opportunity that requires $450 initial investment (cash outflows) today and this project is expected to generate cash inflows of $150 in year 1, $175 in year 2, $X in year 3, and $225 in year 4. If the project rate of return is 10%, calculate the project cash inflow in year 3 (calculate what is $X)?

Answer 1

Project rate of Return is 10%, at this rate of Return NPV is equal to 0.

Thus, NPV of the Project is 0.

Calculating the Value of X using NPV as 0:-

Year	Cash Flow of Project ($)	PV Factor @10%	Present Value of Cash Flow of Project ($)
0	(450.00)	1.00000	(450.00)
1	150.00	0.90909	136.36
2	175.00	0.82645	144.63
3	X	0.75131	0.7513X
4	225.00	0.68301	153.678
			-15.33 + 0.7513X

NPV of the Project = -15.33 +0.7513X

So, 0 = -15.33 +0.7513X

15.33 = 0.7513X

X = $20.40

So, Value of X is $20.40