Question

# You are offered an investment opportunity that costs you \$175,000, has an NPV of (\$364.86), lasts...

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: 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

#### Earn Coins

Coins can be redeemed for fabulous gifts.