The present value of the following cash flow stream is 8250

The present value of the following cash flow stream is $8.250 when discounted at 8.7 percent annually. What is the value of the missing cash flow? (Do not round intermediate calculations and round your answer to 2 decim e.g., 32.16.) Year Cash Flow 1,850 1 $ 2,450 3,050 4.

Solution

Present value of cash flows other than missing cash flow is:

Present value portion of missing cash flow = 8250 - 5,794.14= 2,455.86

Missing cash flow future value = present value * (1+discount rate)^years = 2,455.86 * (1+0.087)^2 = 2901.77

Thus, missing cash flow = 2901.77.

Verification:

Total of present value of cash flows at 8.7% equals 8,250.

Year	Cash flow	Discount factor	Present value
1	1850	0.919963201	1,701.93
2		0.846332292	-
3	2450	0.778594565	1,907.56
4	3050	0.716278349	2,184.65
			5,794.14