Given the cash flow table below, Alice was asked to compute the value of P for t

Question

Given the cash flow table below, Alice was asked to compute the value of P for the cash flow at 8% interest. She wrote four equations. Which is the correct equation?

Year

0

1

2

3

4

5

6

7

8

Cash Flow

-P

1,000

1,150

1,300

1,450

1,600

1,600

1,600

1,600

P = 1,600(P/A, 8%, 8) - 600(P/A, 8%, 5) - 150(P/G, 8%, 4)

P = 1,600(P/A, 8%, 8) + 150(P/G, 8%, 8) - 150(P/G, 8%, 4) (P/F, 8%, 4)

P = 150(P/G, 8%, 4) + 1,000(P/A, 8%, 4) + 1,600(P/A, 8%, 4) (P/F, 8%, 4)

P = 1,000(P/A, 8%, 8) + 150(P/G, 8%, 8) - 150(P/G, 8%, 4) (P/F, 8%, 4)

Year

0

1

2

3

4

5

6

7

8

Cash Flow

-P

1,000

1,150

1,300

1,450

1,600

1,600

1,600

1,600

Explanation / Answer

Assume net present value of cash flow =0

P= 1000/(1+i) + 1150/(1+i)2 + 1300/(1+i)3 + 1450/(1+i)4 + 1600/(1+i)5 + 1600/(1+i)6?+ 1600/(1+i)7?+ 1600/(1+i)8

P= [1000/(1+i) + 1000/(1+i)2 + 1000/(1+i)3 + 1000/(1+i)4] + [150/(1+i)2 + 300/(1+i)3 + 450/(1+i)4][1600/(1+i)5 + 1600/(1+i)6?+ 1600/(1+i)7?+ 1600/(1+i)8]

P = 150(P/G, 8%, 4) + 1,000(P/A, 8%, 4) + 1,600(P/A, 8%, 4) (P/F, 8%, 4)

So answer is C.

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