John and Sally Claussen are contemplating the purchase of a hardware store from John Duggan
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- Beam777
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John and Sally Claussen are contemplating the purchase of a hardware store from John Duggan. The Claussens anticipate that the store will generate cash flows of $74,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $440,000. The Claussens will finance the investment with a variable rate mortgage. Interest rates will increase twice during the 20-year life of the mortgage. Accordingly, the Claussens’ desired rate of return on this investment varies as follows:
Years 1–5 8 % Years 6–10 10 % Years 11–20 12 %
Required:
What is the maximum amount the Claussens should pay John Duggan for the hardware store? (Assume that all cash flows occur at the end of the year.) (Use PV of $1 and PVA of $1) (Round "PV Factors" to 5 decimal places, intermediate and final answer to the nearest dollar amount.)
[Solved] John and Sally Claussen are contemplating the purchase of a hardware store from John Duggan
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- Submitted On 28 Jun, 2017 03:36:12
- Beam777
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