A.

B.

Please answer which method is correct and why?

C6-3 RFS's Present Values The following table gives the net cash inflows at each point in time associated with nine alternatives. For example, item 1 pays $83.96 immediately (that is, at time 0). Item 9 pays nothing immediately (at time 0), $100 one year hence (at time 1), $50 two years hence (at time 2), and $200 three years hence (at time 3). Time Item 0 1 2 3 1 $ 83.96 2 3 $ $ 50.00 $ 6.00 $ 100.00 1.42 106.00 4 5 $ 40.00 $ 6.00 $ $ 25.00 $ 30.00 $ 55.00 $ 50.00 $ 119.10 30.00 6 7 25.00 $ $ $ $ 20.00 $ 35.00 $ 55.00 $ 100.00 $ " 8 55.00 200.00 9 m. Now suppose the interest rate changes unexpectedly to 8% the instant before time 2. Complete the following table for item 9 [values at times 0 and 1 should be as in part (1)]: Time 0 Time 1 Time 2 Time 3 Value Value before Payment Value after Payment Value before Payment Value after Payment Value before Payment $ 306.76 $ 325.16 $ 225.17$ 243.18$ 193.18$ 208.64 225.17x1.08 243.18-50 193.18 1.08 Time 0 Time 1 Time 2 Time 3 Value before payment Value after payment Value before payment Value after payment Value before payment Value 306.8 325.15 225.15 235.2 (A) 185.2 (B) 200 (A) Period Cash Flows (in $) Present value factor @6% Present Value (in $) 1 50 1 50 2 200 926 185.2 Total 235.2 (B) Period Cash Flows (in $) Present value factor @6% Present Value (in $) 1 200 926 185.2 Total 185.2