Murray is planning a project that will cost $22,000. The annual cash inflow, net of income taxes, will be $5,000 a year for 7 years. The present value of $1 at 12% is as follows: Period Present Value of $1 at 12% 1 .893 2 .797 3 .712 4 .636 5 .567 6 .507 7 .452 Using a rate of return of 12%, what is the present value of the cash flow generated by this project

$22620

Explanation:

The present value of cash flows generated by project is calculated as follows;

Use the discount factors with each year's cashflow to find PV;

PV CF1 = 5,000 * 0.893 = 4465

PV CF2 = 5,000 * 0.797 = 3985

PV CF3 = 5,000 * 0.712 = 3560

PV CF4 = 5,000 * 0.636 = 3180

PV CF5 = 5,000 * 0.567 = 2635

PV CF6 = 5,000 * 0.507 = 2535

PV CF7 = 5,000 * 0.452 =  2260

Next , sum them up;

4465+3985+3560 +3180 + 2635+ 2535+ 2260 = $22620

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