Question

Find the value of X in the following cash flow.

Answer 1

From the given cash flow diagram we can conclude the below:
Cash outflow today = X
Cash inflow year 3 = X
Annual cash inflow year 5 to 9 A = 50,000
Interest rate i = 20% or 0.20

 

Now to find value of X we will use below equation
Cash outflow today = [Cash inflow year 3/(1+i)^3] + [A*Annuity(i,5)]/(1+i)^4
Cash outflow today = [Cash inflow year 3/(1+i)^3] + A*[(1-((1+i)^-5))/i]/(1+r)^4
X = [X/(1+0.20)^3] + [50,000*(1-((1+0.20)^-5))/0.20]/(1+0.20)^4
X = (X/1.728) + (50,000*2.9906)/2.0736
X = 0.5787X + (149,530.61/2.0736)
X - 0.5787X = 72,111.60
     0.4213X = 72,111.60
X = 72,111.60/0.4213
X = 171,165.99

 

Therefore value of X is 171,165.99.

Therefore value of X is 171,165.99.