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A proposed project has cash flows of $2,000, $X, $1,750, and $1,250 at the end of Years 1 to 4. The discount rate is 7.2 percent and the present value of the four cash flows is $6,669.25. What is the value of X, the Year 2 cash flow

Respuesta :

The value of the year 2 cash flow is $2800.

What is the value of the year 2 cash flow?

In order to determine the required cash flow, the present value of years 1, 3, and 4 have to determined.

Present value of Year 1 cash flow = $2000 / 1.072 = $1865.67

Present value of Year 3 cash flow = $1750 /(1.072^3) = $1420.54

Present value of Year 4 cash flow = $1250 / (1.072^4) = 946.52

Sum of the present value = 4232.73

Then subtract the above sum from the present value given = $6,669.25 - 4232.73 = $2,436.52

Determine the future value of $2,436.52: $2,436.52 x (1.072)^2 = $2800.

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