Question

The present value of the following cash flow stream is $9,200 when discounted at 10 percent annually.
What is the value of the missing cash flow?
Year Cash Flow
1 $1,300
2 ??
3 1,950
4 2,640

Answer 1

As per the question:

Present value of Future Cashflow = Present value of Year 1 cashflow + Present value of Year 2 cashflow + Present value of Year 3 cashflow + Present value of Year 4 cashflow

9200 = 1300 / (1 + 10%) + Present value of Year 2 cashflow + 1950 / (1 + 10%)^3 + 2640 / (1 + 10%)^4

9200 = 1181.81 + Present value of Year 2 cashflow + 1465.06 + 1803.1555

Present value of Year 2 cashflow = 4749.9745

So we need to find the cashflow after 2 years = 4749.9745 ( 1 + 10%)^2

= 5747.469

So the missing cashflow is 5747.469