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 is considering the purchase of a small restaurant. The purchase price listed by the seller is $1,000,000. John has usedpast financial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restaurant would be asfollows: (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.)Amount$100,00090,00080,00070,00060,000Years1-678910If purchased, the restaurant would be held for 10 years and then sold for an estimated $900,000.Required:Determine the present value, assuming that John desires a 10% rate of return on this investment. (Assume that all cash flows occur atthe end of the year.) (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)Future Amounti =n =Present Value100,00010%90,00010%80,00010%70,00010%60,00010%900,00010%Should the restaurant be purchased?

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

See similar textbooks

Related questions

Q: ou are considering an investment opportunity that yields $520 one year from today, $900 in two…

A: PV = sum of (Cashflow/(1+r)^1 +.......Cashflow/(1+r)^n)

Q: You are deciding between two mutually exclusive investment opportunities. Both require the same…

A: Given: Cost of capital 6.60% Growth rate 2.30% Year Particulars Investment A…

Q: You invest $94.1, and your investment account shows $107.9 at the end of year one, $97.9 at the end…

A: The formula for the Annual Holding Period Return (HPR) is given by:HPR Let's calculate the HPR for…

Q: Find the present value of this cash flow stream. 2. Find the future…

A: Time value of money (TVM) refers to the method used to measure the amount of money at different…

Q: Suppose you expect to receive the following future cash flows at the end of the years indicated.…

A: Future value- Year FV 2 $2300 4 $5200 5 $2600 9 $8000…

Q: Starting in year 3 you will receive 5 yearly payments on January 1 for P50,000. You want to know the…

A: Net Present Value (NPV) is a capital budgeting technique which uses a discount rate to bring all the…

Q: Find the total present worth of a series of cash flows with an annual interest rate of 2% per year.…

A: Annual interest rate = 2% Initial cash flow = 6628 Benefit at year 3 = 13477 Salvage value at year 4…

Q: An investment pays an annual cash flow of $1 forever. The appropriate discount rate is 4% per year.…

A: Annual cash flow (C) = $1Discount rate (r) = 0.04Present value = ?Present value will be the…

Q: An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, $350…

A: Capital budgeting refers to the technique used for estimating the viability of the project by using…

Q: Josh purchased a new machine for his business. Josh expects to produce 80 products at P 100,000.00…

A: Cash flow is the flow of cash in entity. There can be inflow or outflow of cash depending upon the…

Q: An investor has to decide how much he will be willing to pay for an investment that generates the…

A: The present value of future cash flows will be helpful in finding out the total investment which is…

Q: If the annual interest rate is 2%, what is the present value of this opportunity?

A: The present value assists in determining the current value of a future sum of money. It accounts for…

Q: Suppose that starting one year from now you will receive $560 a year at the end of every year. If…

A: Present value of perpetuity = perpetuity amount / discount rate

Q: Mr.Piyasoma is thinking of an investment which will pay cash flows of Rs.10,000 per quarter for the…

A: The value of an amount of money that will be paid on a future date is known as future value. As a…

Q: What is the present value of a perpetuity stream of cash flows that pays P1,000 at the end of year…

A: present value of a perpetuity stream of cash flows = cash flows at end of year 1/(Discount rate -…

Q: International Fabric, Inc. must decide which type of fabric cutting machines it will use - Machine A…

A: we will find the equated annual cost of both machinery A and B and will select the machinery which…

Q: You are deciding between two mutually exclusive investment opportunities. Both require the same…

A: Given Initial investment is $10.3 million Cash inflows of A is $2.17 million Cash inflows of B is…

Q: An investment is expected to generate cash flows of $20,000 next year (at time t=1), and $10,000 in…

A: Given: Year Particulars Amount 1 Cash inflows $20,000 2 Cash inflows $10,000 Growth rate…

Q: Suppose Karlem invested P20,000 for five years with simple annual interest of 10%. What is the…

A: Simple interest is a method under which interest is calculated on a principal amount. It calculates…

Q: You are given $200 each year starting next year and finishing in 15 years (t = 15). If the discount…

A: We need to use present value of annuity due formula to calculate present value of cash flows stream.…

Q: You have been offered the opportunity to invest in a project that will pay $1,241 per year at the…

A: The concept of time value of money will be applied here. As per the concept of time value of money…

Q: a)Calculate the intemal rate of retum (IRR) of the following cash flow. Determine if this is a good…

A: IRR is rate that makes present value(PV) of inflows and outflows of proposal equal whereas ERR is…

Q: You have an opportunity to make an investment that will pay $100 at the end of year 1, $400 at the…

A: Net present value is the method of capital budgeting that is used to determine the present worth of…

Q: Consider two riskless perpetuities: (i) pays $120 every year; (ii) pays $10 every month. If the…

A: When the rate of return of the two risk less perpetuities is same, the factor that influences the…

Q: You are presented with an investment opportunity that will give you the following stream of cash…

A: Cash flow (0 to 4 years ) = $0Cash flow (Until year 14 ) = $2,000Cash flow (Until year 20 ) =…

Q: Which of the following will generate the greatest future sum of money, assuming other variables stay…

A: Assumed values: Assume: Amount Present value(PV) $2,500 Years(NPER) 5

Q: Consider the following two cash flow series of payments: Series A is a geometric series increasing…

A: Total amount paid should be equal to the cost. Value of X will be equal to the sum of PV of future…

Q: a. Calculate the annual cash flows ( annuity payments) from a fixed - payment annuity if the present…

A: Annual cash flows refer to the amount that defines the inflow and outflow of the cash during the…

Q: d. Calculate the required preretirement real annual savings necessary to meet your consumption…

A: The amount needed to be saved to meet a financial goal: When the money needed to meet a financial…

Q: (RR calculation) Your investment advisor has offered you an investment that will provide you with a…

A: The IRR of an investment refers to the measure of the profitability of the investment calculated by…

Q: rationale of the time value of money, demonstrate the difference between present and future values…

A: Introduction : In simple words, the present value of cash flows refers to the sum of the discounted…

Q: ou will receive $100 one year from today and another $100 two years from today. The interest rate…

A: Present Value is a current price of the future value at specified rate of interest which amount will…

Q: An investor has developed projections for an investment that will generate the following stream of…

A: The future value of cash flows will be reflective of the compounded value of investment in the…

Q: Francisco expects to receive $ 27483 in 36 years from now. the relevant discount rate is 18.3 %…

A: The concept of time value of money will be used here. As per this concept the worth of money changes…

Q: Draw a cash flow diagram of any investment that exhibits both of the following properties: The…

A: Cash flow diagrams are used to depict the inflows and outflows of cash over the lifetime of a…

Q: . Evaluate the following statement:Consider two riskless perpetuities: (i) pays $120 every year;…

A: The statement suggests that the only reason perpetuity (ii) would be a better investment than…

Q: Calculate the duration for the following cash flows of an investment. Given the market interest…

A: Year Cash flow 0 0 1 140 2 150 3 160 4 170 5 180 6 190 7 200 8 250 Interest…

Q: You will receive cash flows of $23.42 next year from a perpetuity. The perpetuity is indexed to…

A: Present value in case of perpetuity The quantity of the regular cash flows is simply divided by the…

Q: Draw the cash flow diagram with your solution. A man wishes his son to receive P500,000 ten years…

A: Final amount at maturity calculated using the formula given below. F = P x (1+r)^n Here F = Final…

Q: Eve expects to pay the lump sum of $500,000 five years from now. How much should she set aside now,…

A: Lumpsum needed after 5 years = $500000 Amount to set aside now = X Interest rate = 8% in year 1, 10%…

Q: An investment advisor offers you a product that will deliver cash-flows at the end of each of the…

A: Present Value (PV) is today`s value of money you expect from future cash flows.

Question

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 is considering the purchase of a small restaurant. The purchase price listed by the seller is $1,000,000. John has used
past financial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restaurant would be 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.)
Amount
$100,000
90,000
80,000
70,000
60,000
Years
1-6
7
8
9
10
If purchased, the restaurant would be held for 10 years and then sold for an estimated $900,000.
Required:
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.) (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
Future Amount
i =
n =
Present Value
100,000
10%
90,000
10%
80,000
10%
70,000
10%
60,000
10%
900,000
10%
Should the restaurant be purchased?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

When an investment’s annual net cash inflows are equal every year, the investment’s payback period can be calculated as: (See your Chapter 25 notes, page 2) When an investment’s annual net cash inflows are equal every year, the investment’s payback period can be calculated as: (See your Chapter 25 notes, page 2) Initial cost of the investment minus the annual net cash inflow Average amount of the investment divided by the average annual net income Initial cost of the investment divided by the annual net cash inflow Present value of net cash inflow divided by the initial cost of the investment Future value of net cash inflow divided by the initial cost of the investment Present value of the net cash inflow minus the initial cost of the investment Annual net cash inflow minus the initial cost of the investment Average annual net income divided by the average amount of the investment
You are offered an investment opportunity with the “guarantee” that your investment will double in 25 years. Assuming annual compounding, what annual rate of return would this investment provide
Suppose an investor is interested in purchasing the following income producing property at a current market price of $ 1,490,000. The prospective buyer has estimated the expected cash flows over the next five years to be as follows: Year 1 = $88,000, Year 2 = $90,662, Year 3 = $91,923, Year 4 = $95,778, Year 5 = $97,000. Assuming that the required rate of return is 15% and the estimated proceeds from selling the property at the end of year five is $1,860,000, what is the NPV of the project? What is the IRR of the project?
Find the present value of the following cash flow: receive $7 every year for 28years with the first payment being 9 years from now. Assume an effective annual rate of 5.1%
Suppose that immediately after making the fifth payment to Joseph as described above, Wagon Financial also implements a new investment strategy which they believe will yield even higher investment returns than the original 12% per annum. Assuming this to be true, would Wagon Financial need to set aside more or less money than your answer in part f) to be sure that they can afford to make all future payments to Joseph? Justify your answer.
What is the present value of end-of-year cash flows of 1000 per year, with the first cash flow received three years from today and the last one 10 years from today? Use a discount rate of 12 percent.
i need the answer quickly
2. Suppose you expect to receive the following future cash flows at the end of the years indicated: GHC 1800 in year 2, GHC 4200 in year 4, GHC 2,700 in year 5, and GHC 9000 in year 9. If the interest rate is 9% per year, what is the value of the four flows at year 3?
An investment costs P465 now and is expected to produce cash flows of P100 at the end of each of the next 4 years, plus an extra lump-sum payment of P200 at the end of the fourth year. What is the expected rate of return on this investment?
An investment, which is worth $54,000.00 and has an expected return of 11.80 percent, is expected to pay fixed annual cash flows for a given amount of time. The first annual cash flow is expected in 1 year from today and the last annual cash flow is expected in 6 years from today. What is the present value of the annual cash flow that is expected in 3 years from today? O $10,516.47 (plus or minus 10 dollars) O $13,059.88 (plus or minus 10 dollars) O $9,345.74 (plus or minus 10 dollars) O $11,681.46 (plus or minus 10 dollars) O none of the answers are within 10 dollars of the correct answer +
Assuming Paulin will receive: Years 1 through 3 = $1000PHP 1,500 a year Years 4 through 6 = $1000PHP 1,500 a yearYears 7 through 9 = $1000PHP 1,500 a year with all cash flows to be received at the end of the year. If Pauline requires an 11% rate of return, what is the present value of these cash flows?