Question

Marcia observed the following cash flow series (in $1000 units) in an accounting report at work. The actual amounts in years 1 and 4 are missing; however, the report states that the present worth in year 0 was $360,000 at an interest rate of 8% per year. Calculate the value of x. 1 4 Year | Cash flow, $x1000 0 40x 2 40 3 40x 5 40 6 40 The value of x is determined to be $ | C .

Answer 1

Solution:-

Year	Cash Flow	PVF @ 8%	Present Value
0	40,000	1	40,000
1	X	0.9259	0.9259X
2	40,000	0.8573	34,292
3	40,000	0.7938	31,752
4	X	0.7350	0.7350X
5	40,000	0.6806	27,224
6	40,000	0.6302	25,208
Total		Present Value	1,58,476 + 1.6609X

Now, Present worth in Year 0= $ 360,000

Therefore, Equation is

$3, 60,000 = 1, 58,476 + 1.6609X

$3, 60,000 – 1,58,476 = 1.6609X

$1, 74,524 = 1.6609X

X = $1, 74,524 / 1.6609

X = 1,05,077.96 or 1,05,078