Question

Find the missing cash flow identified as X in the diagram. Discount rate is 8% and present value of the cash flows is $6,611.11. Time Carne Pows s . s 1,000.00 Š s 2,000.00 s 4.000 6 Cash flows $ - $ 1,000.00 X $ 2,000.00 $ 4,000.00

Answer 1

Missing cash flow is $ 1,350

Step-1:sum of present value of cash flow of year 1,3 and 4
Year	Cash flow	Discount factor	Present Value
a	b	c=1.08^-a	d=b*c
1	$ 1,000.00	0.925925926	$            925.93
3	$ 2,000.00	0.793832241	$         1,587.66
4	$ 4,000.00	0.735029853	$         2,940.12
	Total		$         5,453.71
Step-2:Balance amount of present value
Present value of all cash flows	$         6,611.11
Present value as above calculated	$         5,453.71
Balance present value	$         1,157.40
Step-3:Cash flow of year 2
Cash flow of year 2	=	Cash flow of now	*	(1+i)^n
	=	$               1,157.40	*	(1+0.08)^2
	=	$               1,157.40	*	1.1664
	=	$               1,349.99
Where,
i	=	8%
n	=	2