# Question & Answer: On December 1, Al Smith Purchased a car for \$18,500. He paid \$5,000 immediately and agreed to pay…..

On December 1, Al Smith Purchased a car for \$18,500. He paid \$5,000 immediately and agreed to pay three additional payments of \$6,000 each (which includes principal and interest) at the end of 1, 2, and 3 years. Maintenance for the car is projected at \$1,000 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 the maintenance work) for \$7,000. Using these facts, prepare a table of cash flows.

## Expert Answer

 Cash Flow Table Year Calculation Amount 0 Cash Outflow (\$5000) 1 Cash Outflow= \$6000 installment + 1000 maintenance (\$7000) 2 Cash Outflow= \$6000 installment + 2000 maintenance (\$8000) 3 Cash Outflow= \$6000 installment + 2000 maintenance (\$8000) 4 Cash Inflow= \$7000 sale price – 2000 maintenance \$5000

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