Question

you are negotiating the cash flow of a potential investment that will contractuallly last the next five years. you are asked to invest $19,004 today and you will receive fixed payments of $362 at the end of each of the next four years. you will then receive one large, final payment at the end of the fifth year. if you require a return of 14 percent per year on such an investment, what must the large, final cash flow be such that the financial value of the cash for you receive equal your initial cash investment?

Answer 1

IRR is the Rate at which PV of Cash Inflows are equal to PV of Cash Outflows.

Year	CF	PVF @14%	Disc CF
1	$ 362.00	0.8772	$ 317.54
2	$ 362.00	0.7695	$ 278.55
3	$ 362.00	0.6750	$ 244.34
4	$ 362.00	0.5921	$ 214.33
5	X	0.5194	0.5194X
PV of Cash Inflows	1054.76 + 0.5194X

Thus 1054.76 + 0.5194X = 19004

0.5194X = 19004 - 1054.76

= 17949.24

X = 17949.24 / 0.5194

= $ 34559.73

Pls do rate, if the answer is correct and comment, if any further assistance is required.