10. The Right Brothers are considering the purchase of a bakery from James Bond. The Right Brothers anticipate that the bakery will generate cash flows of $76,000 per year for 20 years. At the end of 20 years, they intend to sell the
10. The Right Brothers are considering the purchase of a bakery from James Bond. The Right Brothers anticipate that the bakery will generate cash flows of $76,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $460,000. The Right Brothers will finance the investment with a variable rate mortgage. Interest rates will increase twice during the 20-year life of the mortgage. Accordingly, the Right Brothers’ desired rate of
| Years 1–5 | 8 | % |
| Years 6–10 | 10 | % |
| Years 11–20 | 12 | % |
Required:
What is the maximum amount the Right Brothers should pay James Bond for the bakery? (Assume that all cash flows occur at the end of the year.) (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
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