Question

You are offered an investment opportunity that costs you $175,000, has an NPV of ($364.86), lasts for ten years,

has an interest rate of 10% and produces the following cash flow stream:

Year Cash Flow

0 ($175,000)

1 - 3 $10,000

4 - 6 $50,000

7 ?

8 - 10 $15,000

Required: Determine the value of the cash flow in year 7

Answer 1

Answer:
Calculation of value of cash inflow in year 7, let x.
Given:
NPV =	Present value of cash inflows - Initial cost
Initial cost = $175000
Year	Cash flows	Present value factor @10%	Present value
1	10000	0.9091	9090.91
2	10000	0.8264	8264.46
3	10000	0.7513	7513.15
4	50000	0.6830	34150.67
5	50000	0.6209	31046.07
6	50000	0.5645	28223.70
7	x	0.5132	0.5132x
8	15000	0.4665	6997.61
9	15000	0.4241	6361.46
10	15000	0.3855	5783.15
		Total	137431.18 + 0.5132x
NPV =	($137431.18 + 0.5132x) -$175,000
$364.86 =	-37568.82 + 0.5132x
x	= (364.86 + 37,568.82) / 0.5132
	= 37,933.68 / 0.5132
	= 73,915.98	(Answer)
So, value of cash flow in year 7 is $73,915.98