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

B.

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

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