Question

Suppose that you will receive $5,000 in year 1, $5,000 in year 2, $5,000 in year 3 and $7,000 in year 5. And somehow you know that the present value for the whole cash stream is $23,071.30. At a 7% discount rate, the cash flow received in year 4 will be ــــــــــــــــــــــــــــ.

Select one:

a. $7,000

b. $7,200

c. $6,500

d. $6,800

Answer 1

Answer:
Calculatio of Cash flow in year 4
Let CF4
Year	Cash flows	Present value factor @7%	Present value
1	5000	0.9346	4672.90
2	5000	0.8734	4367.19
3	5000	0.8163	4081.49
4	CF4	0.7629	0.7629 CF4
5	7000	0.7130	4990.90
		Total	18112.48 + 0.7629 CF4
Equate
$23071.30 =	18112.48 + 0.7629 CF4
CF4 =	($23071.30 - $18112.48) / 0.7629
	6499.9607
So, as per the given options answer is $6,500