Solving for missing cash flows
Your friends, Lee and Kuan, are struggling to solve for the missing cash flows of the following cash flow stream:
Year 0 - $0
Year 1, Year 2 - $505
Year 3 - $853
Year 7 - 2.5x
In fact, they're convinced that "x" must be $115.16. Note that the present value of the above cash stream with annual payments is $5,095.00, and the discount rate is 8.9411% compounded 365 time(s) per year. This cash flow stream pays a growing annuity starting the end of year 3 for which the growth rate is 4.00%. Also, it pays a perpetuity starting the end of year 7. What is the value of the missing cash flows? And, are Lee and Kuan correct?
-
$114.29, they are incorrect
-