Question

The present value of the following cash flow stream is $7,200 when discounted at 10 percent annually. What is the value of the missing cash flow at year 2?

Year                      Cash Flow
1                            3,100
2                                           
3                            2,200
4                            1,500

A. $2,500

B. $2,250

C. $2,062

D. $1,952

E. $1,842

Please help urgently. No work needs to be shown.

Answer 1

Present value=Cash flows*Present value of discounting factor(rate%,time period)

7,200=3,100/1.1+Cash flow for year 2/1.1^2+2,200/1.1^3+1,500/1.1^4

7,200=5495.59456=Cash flow for year 2/1.1^2

Cash flow for year 2=(7200-5495.59456)*1.1^2

=$2,062(Approx).