Valuation fundamentalsPersonal Finance ProblemImagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annualafter-tax cash benefits of $968 at the end of each year and assume that you can sell the car forafter-tax proceeds of 4,000 at the end of the planned 6-year ownership period. All funds for purchasing the car will be drawn from yoursavings, which are currently earning 7% after taxes.

a.Identify the cashflows, theirtiming, and the required return applicable to valuing the car.

b.What is the maximum price you would be willing to pay to acquire thecar? Explain.