On December 1, Al Smith Purchased a car for $18,500. He paid $5,000 immediately and agreed to pay

2-52 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.

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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