Question

Initial Investment: (250,000) Year 1: 60k Year 2: 70k Year 3: 80k Year 4: ? Year 5: 100k NPV: 19,068.30 Discount rate of 9% How would you find cash flows for year 4? Would you just take the PV of the other years? Could you solve this with a financial calculator?

Answer 1

Solution:

Year	Cash Flow	PV factor @ 9%	PV of Cash Flow
	(A)	(B)	(A*B)
0	($250,000)	1	($250,000)
1	$60,000	0.917	$55,020
2	$70,000	0.841	$58,870
3	$80,000	0.772	$61,760
4	P	0.708	0.708P
5	$100,000	0.65	$65,000
Net Present Value			0.708P - $9,350
Net Present Value (given)			$19,068.30

From the above table, the sum of all PV cash flow is the Net Present Value. SO we put the value of Net Present Value in the equation to find out the 4rth year cash flow

Net Present Value = 0.708*P – 9,350

19,068.30 = 0.708*P – 9,350

0.708*P = 19,068.30 + 9,350 = 28,418.30

P = 28,418.30 / 0.708

= $40,138.84

Note – There may be different in figure due to rounding off of discounting factor. But you will find the solution and way how to solve it.

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