For the cash flows provided in the table below determine the

For the cash flows provided in the table below, determine the unknown value \"A\". Use an interest rate of 7%. Year 0 2 3 4 5 Cash flow! 12,000 |-A RA 1-3A |-4A |-6A Select one: a. $654.56 b. $973.60 c. $ 846.04 d. $791.80

Solution

The value A is increased by A every period. NPV should be 0

12000 = A(P/A, 7%, 4) + A(P/G, 7%, 4) + 6A(P/F, 7%, 5)

12000 = A*(3.3872 + 4.7947) + 6A*0.71299

A = 12000/12.4599

This gives A = 963.08

Option B is closest.