CIMA BA2 · Chapter 12 · Question 7 of 13
A project will generate $10,000 a year at the end of each of years 3 to 7 inclusive. The cost of capital is 10%. The annuity factors at 10% are: years 1-2 1.736; years 1-5 3.791; years 1-7 4.868. What is the present value of these cash flows?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $31,320
Explanation
The cash flows form an annuity for years 3-7. PV = $10,000 x (annuity factor years 1-7 - annuity factor years 1-2) = $10,000 x (4.868 - 1.736) = $10,000 x 3.132 = $31,320.
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