I am having allot of trouble trying to figure out how to find the unkown in a ca

Question

I am having allot of trouble trying to figure out how to find the unkown in a cash flow diagram. I cannot get it copied on here so I will describe it.

It goes from 0 to 7(in years). At 1 there is an arrow pointing up to 600 and an arrow pointing down. At 2 there is an arrow pointing up to 400 and an arrow pointing down. At 3 there is an arrow pointing up to 200 and an arrow pointing down. At 4 there is just an arrow pointing down. At 5 there is an arrow pointing up to 200 and an arrow pointing down. At 6 there is an arrow pointing up to 400 and an arrow pointing down. At 7 there is an arrow pointing up to 600 and an arrow pointing dow. All the arrows pointing down are exactly the same size.

I need to find the value A for the values pointing down given that the interest rate is 11% and the cash flow diagram.

Please show all work.

Explanation / Answer

Assuming the NPV of the entire cash flow is 0, we get:

0 = 600*PVIF(11%,1) + 400*PVIF(11%,2) + 200*PVIF(11%,3) + A*PVIF(11%,4) + 200*PVIF(11%,5) + 400*PVIF(11%,6) + 600*PVIF(11%,7)
0 = 600*0.9009 + 400*0.8116 + 200*0.7312 + A*0.6587 + 200*0.5935 + 400*0.5346 + 600*0.4817
0 = 1632.97 + A*0.6587
A = -2478.96

Thus, the cash flow at A is -$2478.96

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.