Answer:
The correct option is b. $22,820
Explanation:
For computing the present value of this project, we have to multiply the yearly cash inflows with their present values which is shown below
In mathematically,
Present value = Year 1 cash inflows × present value factor of year 1 + Year 2 cash inflows × present value factor of year 2 + Year 3 cash inflows × present value factor of year 3 + Year 4 cash inflows × present value factor of year 4 + Year 5 cash inflows × present value factor of year 5 + Year 6 cash inflows × present value factor of year 6 + Year 7 cash inflows × present value factor of year 7
= $5,000 × 0.893 + $5,000 × 0.797 + $5,000 × 0.712 + $5,000 × 0.636 + $5,000 × 0.567 + $5,000 × 0.507 + $5,000 × 0.452
= $4,465 + $3,985 + $3,560 + $3,180+ $2,835 + $2,535 + $2,260
= $22,820
Hence, the present value of the cash flow generated by this project is $22,820
Therefore, the correct option is b. $22,820
