If a new restaurant owner determines that she does not have sufficient funds to open a new location, where does this determinati
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Answer:
It will be willing to pay up to $297,853.46
Explanation:
First, we calculate present value of the cash saving
C 45000
time 8
rate 0.05
PV $290,844.57
Then, the present Value of the salvage value
Maturity 7.50 %
time 8.00
rate 0.05
PV 5.08 %
This is calculate as a percent, because we are not given with a cash value.
Last, the 12,000 major overhaul
Maturity -12,000.00
time 8.00
rate 0.05
PV -8,122.07
This PV is negative as it is a cash out-flow
Lastly, we add them all:
290,844.57 + 0.0508PV - 8,122.07 = PV
<u>And solve for PV</u>
290,844.57 - 8,122.07 = PV - 0.0508PV
282,722.5 = 0.9492PV
282,722.5/0.9492 = PV
PV = 297,853.455541 = 297,853.46