Consider the following The required rate of return is 14 Fin

Consider the following:

The required rate of return is 14%. Find the minimum amount you would have to receive as a cash flow in year 3 and still recommend the project. Answer to 2 decimals, for example 100.12.

Solution

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=200/1.14+300/1.14^2+x/1.14^3+600/1.14^4+700/1.14^5[where x=cash flow for year 3]

8000 =200/1.14+300/1.14^2+x/1.14^3+600/1.14^4+700/1.14^5

8000=1125.085087+x/1.14^3

(8000-1125.085087)=x*0.674971516

x=6874.914913/0.674971516

=$10185.49(Approx)=cash flow for year 3.