Assume a cash flow of $82,400 in the first year and $148,600 in the second year.Also assume a present value of $303,764.34 at a discount rate of 12.75 percent.What is the cash flow in the third year if that is the only other cash flow?

Question

Quizplus · Accepted Answer

The correct answer is A. The present value of the cash flows in the first two years is $230,364.34 ($82,400 / (1 + 0.1275) + $148,600 / (1 + 0.1275)^2). The cash flow in the third year must be $163,100 ($303,764.34 - $230,364.34) to make the present value of all three cash flows equal to $303,764.34.

Assume a Cash Flow of $82,400 in the First Year