Question

Marcia observed the following cash flow series (in $1,000 units) in an accounting report at her job. The actual amounts in years 1 & 4 are missing, but the report states that the present worth in year 0 was $300,000 at an interest rate of 10% per year. Which of the following is correct about the value of x?

Year	0	1	2	3	4	5	6
Cash Flow, $1,000	40	x	40	40	x	40	40

a) x < $40,000, and is negative

b) x < $40,000, and is positive

c) x = $40,000

d) x > $40,000

Answer 1

Answer b. X >40000, the value is positive
The explanation is as follows
Year	Cash flows	PVF @ 10%	Present value
0	40000	1	40000
1	X	0.909091	0.909 X
2	40000	0.826446	33057.85
3	40000	0.751315	30052.59
4	X	0.683013	0.683 X
5	40000	0.620921	24836.85
6	40000	0.564474	22578.96
Prsent worth			150526 + 1.592 X
Now, as per problem, Presetn worth is equal to $300,000
$ 300,000 = $150526 + 1.592 X
Therfore X = $93891