Determine the present value, assuming that John desires a 10% rate of return on this investment. (Assume that all cash flows occur at the end of the year.) **John Wiggins Restaurant Purchase Analysis**John Wiggins is evaluating the purchase of a small restaurant. The seller's asking price is $1,000,000. Based on past financial information, John estimated the following future net cash flows (cash inflows minus outflows) from the restaurant:- **Years 1-6:** $100,000 per year- **Year 7:** $90,000- **Year 8:** $80,000- **Year 9:** $70,000- **Year 10:** $60,000If purchased, John plans to hold the restaurant for 10 years and then sell it for an estimated $900,000.**Objective:**The task is to calculate the present value of these cash flows, using a 10% desired rate of return. The assumption is that all cash flows occur at the end of each year.**Cash Flow Calculation Table:**1. **Future Amount:** Annual or terminal cash flow values.2. **i (Interest Rate):** 10% for each cash flow.3. **n (Years):** Corresponds to specific years for each cash inflow.4. **Present Value Calculation:** Use financial tables or formulas to calculate the present value for each cash amount based on the 10% interest rate.**Should the Restaurant be Purchased?**The decision depends on whether the total present value of cash flows equals or exceeds the asking price of $1,000,000. Fill in each present value calculation, sum them, and compare to the purchase price. The table currently shows a total present value of $0, indicating calculations need completion.

Solution : Future Amount i= n= PV Factor Present Value $100,000.00 10% 1-6 4.355261 $435,526…

Answered: Determine the present value, assuming…

Determine the present value, assuming that John desires a 10% rate of return on this investment. (Assume that all cash flows occur at the end of the year.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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