1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Anit [1.1K]
3 years ago
12

John and Sally Claussen are considering the purchase of a hardware store from John Duggan. The Claussens anticipate that the sto

re will generate cash flows of $70,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $400,000. 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: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)Years 1-5: 7%
Years 6-10: 10%
Years 11-20: 12%
Required: What is the maximum amount the Claussens should pay John Duggan for the hardware store?
Business
1 answer:
Marina CMI [18]3 years ago
4 0

Answer:

Explanation:

Calculate maximum that should pay:

Compute present value of cash flows from the store, year 1 to 5 :

Annual cash flows are $70,000

Desired rate of return on investment for 1 to 5 years is 7%

Number of years is 5

Present value of cash flows generated during 1 to 5 years =

= $287,013.82

Compute present value of cash flows from the store for years 6 to 10

Annual cash flows are $70,000

Desired rate of return on investment for 6 to 10 years is 10%

Desired rate of return on investment for 1 to 5 years is 7%

Number of years is 5

Present value of cash flows generated during 6 to 10 years = annual cash flows x PVIFA (10%,5) x PVIF (7%,5)

= $70,000 x 3.79079 x 0.7130 = $189,198.33

Compute present value of cash flows from the store for years 11 o 20

Annual cash flows are $70,000

Desired rate of return on investment for 11 to 20 years is 12%

Desired rate of return on investment for 6 to 10 years is 10%

Desired rate of return on investment for 1 to 5 years is 7%

Number of years is 10

Present value of cash flows generated during 11 to 20 years = [annual cash flows x PVIFA (12%,10)] x PVIF (10%,5) x PVIF (7%,5)

= $70,000 x 5.65022 x 0.62092 x 0.7130  = $175,100.98

Calculate present value of estimated sale amount to be received for sale of store

Present value of estimted sale amount to be received = [Estimated sale amount x PVIF (12%,10)] x PVIF (10%,5) x PVIF (7%,5)

=$400,000 x 0.32197 x 0.62092 x 0.7130=

=$57,016.50

Calculate total maximum amount that should be paid

Particulars Amount ($)

Present value of cash flows during 1 to 5 years         $287,013.82

Present value of cash flows during 6 to 10 years $189,198.33

Present value of cash flows during 11 to 20 years $175,100.98

Present value of estimated sale value                  $57,016.50

Maximum amount that C should pay to JD for store $708,329.63

Therefore, Maximum amount that should be paid $708,329.63

You might be interested in
____ focuses on specifying what the new system will look like and how it will work.
frosja888 [35]

The answer in the space provided is system design. It is because a system design is a way of providing a definition of a specific interface or data that is laid out in means of having to gain satisfactory with the requirements being given or laid out.

4 0
3 years ago
What type of discount would Lennox offer its air conditioner dealers if they placed their orders and received delivery before Ap
gladu [14]
Seasonal allowance would be given
7 0
3 years ago
Read 2 more answers
Fabian’s factory produces and sells computers and gaming consoles. Over time, he determined that he could produce gaming console
Alona [7]

Answer:

D. Opportunity cost.

Explanation:

  • Based on the question, the only information we have to know what led Fabian's decission is the fact that it is <u>more profitable for him to produce gaming consoles than computer systems.</u>
  • Then, for him, it is costly to produce computer systems in terms of the earnings he would set aside if he does not produce gaming consoles (because he is producing  computer systems instead).
  • Then, the opportunity cost of producing computer systems it is high: he could be earning more by producing gaming consoles.
  • Then, based on the opportunity cost, he decides to produce only gaming consoles.
6 0
3 years ago
Suppose Ruston Company had the following results related to cash flows for 2020: Net Income of $9,100,000 Adjustments from Opera
elena-s [515]

Answer:

The Net Cash Flow is $9,300,000.

Explanation:

A statement of cash flows with amounts in thousands can be created to determine the Net Cash Flow as follows:

                             Ruston Company

                       Statement of Cash Flows

                              For the Year 2020

<u>Details                                                                    $'000    </u>

Net Income                                                            9,100

Adjustments from Operating Activities            <u>    1,100  </u>

Net Cash Flow from Operating Activities         10,200

Net Cash Flow from Investing Activities           (4,300)

Net Cash Flow from Financing Activities of   <u>    3,400  </u>

Net Cash Flow                                                <u>     9,300  </u>

Since the amount is in thousands, that implies that  the Net Cash Flow is $9,300,000.

7 0
2 years ago
Drag the tiles to the correct boxes to complete the pairs.
Sonbull [250]

Answers:

F h Garvey

Explanation:

Dfffd

4 0
2 years ago
Other questions:
  • Jeremy Corporation estimated manufacturing overhead costs for the year to be $ 550 comma 000. Jeremy also estimated 8 comma 000
    9·1 answer
  • A job analysis method is ________ if it accurately assesses each job's duties.
    7·1 answer
  • Todd irrevocably transfers property to a trust over which he retains an annuity payment each year equal to 6% of the initial fai
    9·1 answer
  • Abbott Company purchased $6,500 of merchandise inventory on account. Advent uses the perpetual inventory method. Which of the fo
    6·1 answer
  • Andrew agrees to paint Rosalene's house for $500. Two days after he starts the job, he decides that $500 isn't enough money. He
    13·1 answer
  • There is an inverse relationship between bonds' quality ratings and their required rates of return. Thus, the required return is
    15·1 answer
  • Bunk stores has requested a quote for a special order of bubbs. this order would not be subject to any corporate allocation (and
    5·1 answer
  • A manufacturer of hospital supplies has a uniform annual demand for 320,000 boxes of bandages. It costs ​$10 to store one box of
    15·1 answer
  • Saving money becomes easier if we do this first.
    8·1 answer
  • if there was a shirt that looks identical but came out in two different seasons how do you explain the price difference to the c
    5·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!