Cash Flow Diagrams 2-75 On December 1, Al Smith purchased a car for $25,000. He

Question

Cash Flow Diagrams 2-75 On December 1, Al Smith purchased a car for $25,000. He paid $7500 immediately and agreed to pay three additional payments of $8000 each (which includes principal and interest) at the end of 1, 2 and 3 years. Maintenance for the car is projected at $1000 at the end of the first year and $2000 at the end of each subsequent year. Al expects to sell the car at the end of the fourth year (after paying for the maintenance work) for $12,000. Using these facts, prepare a table of cash flows.

Explanation / Answer

EOY

Cash Flow

Reasoning

0

-7500

Initial Payment

1

-8000-1000

Additional payment + Annual O&M Cost

2

-8000-2000

Additional payment + Annual O&M Cost

3

-8000-2000

Additional payment + Annual O&M Cost

4

12000

Salvage Value (after deducting Annual O&M Cost)

EOY

Cash Flow

Reasoning

0

-7500

Initial Payment

1

-8000-1000

Additional payment + Annual O&M Cost

2

-8000-2000

Additional payment + Annual O&M Cost

3

-8000-2000

Additional payment + Annual O&M Cost

4

12000

Salvage Value (after deducting Annual O&M Cost)

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