Question

Year 1: $5,346 Year 2: $1,453 Year 3: Missing Year 4: $2,534

The above shows the cash flows that you will receive at the end of the respective year. The present value of all of the cash flows (including the missing year 3 cash flow) is $15,020. What is the cash flow amount at the end of year 3 if a discount rate of 10% was used to calculate the present value of the cash flows?

Answer 1

Year	Cash flow
1	5346
2	1453
3	X
4	2534

Cash flow in year 1 = C1 = 5346

Cash flow in year 2 = C2 = 1453

Cash flow in year 3 = C3 = X

Cash flow in year 4 = C4 = 2534

Discount rate = r = 10%

Present value of all the cash flows = PV = 15020

Present value of all the cash flows is calculated using the formula:

PV = C1/(1+r)1 + C2/(1+r)2 + C3/(1+r)3 + C4/(1+r)4

15020 = 5346/(1.1)1 + 1453/(1.1)2 + X/(1.1)3 + 2534/(1.1)4

15020 = 4860 + 1200.82644628099 + X/(1.1)3 + 1730.75609589509

15020 = 7791.58254217608 + X/(1.1)3

X/(1.1)3 = 15020 - 7791.58254217608

X = 7228.41745782392 *(1.1)3 = 9621.02363636364

Cash flow amount at the end of year 3 = $ 9621.02 (Rounded to nearest cent)

Answer -> 9621.02