5 CheckJohn and Sally Claussen are considering the purchase of a hardware store from John Duggan. The Claussens anticipate that the storewill generate cash flows of $87,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated$570,000. 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: (EV of $1. PV of $1.EVA of $1. PVA of $1. EVAD of $1 and PVAD of S1) (Use appropriate factor(s) from the tables provided.)Years 1-57%Years 6-109%Years 11-20 11%Required:What is the maximum amount the Claussens should pay John Duggan for the hardware store? (Assume that all cash flows occur at theend of the year.) (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)PV of $87,000 cashflowPV of $570,000selling priceMaximum paid forstoreYears 1-5Years 6-10Years 11-20Year 20Total

Present value of cash flows from the store for years 1 to 5=Annual cash flows×PVIFA(7%, 5 years)…

Answered: John and Sally Claussen are considering…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 16P

See similar textbooks

Similar questions

John and Sally Claussen are considering the purchase of a hardware store from John Duggan. The Claussens anticipate that the store will generate cash flows of $81,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $510,000. 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 9 % Years 11–20 11 % Required: PV of $81,000 cash flow PV of $510,000 selling price Maximum paid for store Years 1-5 ? Years 6-10 ? Years 11-20 ? Year 20 ? ? Total ? + ? = ? What is the maximum amount the Claussens should pay John Duggan for the hardware…
Adam has his eyes set on buying an apartment in New Kingston within the next 6 years. Based on investment advice, the Apartment will cost $4 Million Dollars in total payouts. Adam will however benefit from a one million dollars deposited in his bank account as a gift from his grandparents. Adam approached a mortgage bank to finance the rest of the money required. He will be given six years at an interest rate of 9 % to complete the payments. a) Calculate the annual payments to be made on the loan each year. b) Prepare the Amortization schedule for the duration of the Loan. c) Adam was given another option of paying 10 % on the same loan compounded semi annually for 6 years, show how the Amortization Schedule would look for the first three (3) payments.
Tom wishes to purchase a property that's been valued at $400,000. He has 15% of this amount available as a cash deposit and will require a mortgage for the remaining amount. The bank offers him a 15-year mortgage at 2.5% interest. Calculate the total interest Tom will pay over the lifetime of the loan. Round your answer to the nearest dollar. Do not rould until you have calculated the final answer.
John is considering the purchase of a lot. He can buy the lot today and expects the price to rise to $15,000 at the end of 10 years. He believes that he should earn an investment yield of 8 percent compounded annually on his investment. The asking price for the lot is $7,000. Should he buy it? What is the internal rate of return compounded annually on the investment if Johnpurchases the property for $7,000 and is able to sell it 10 years later for $15,000?
Bill is assessing an investment in one of two studio apartments in Sydney’s Potts Point as rental properties for a 3-year time frame. Each property requires an initial outlay of $200,000 and would be sold at the end of 3 years. Bill expects that at this time he could sell property A for $300,000 and property B for $280,000. He also anticipates an increase in net rental income each year for each property. Property B is older but because of its excellent location he expects to achieve a higher net rental even though its expected sales price is likely to be a bit lower than property B. If Bill did not want to invest in either of the two properties then he would invest the $200,000 in a managed fund of equivalent risk which is expected to pay a rate of return of 7% p.a. The expected net income flows for both properties is shown below: Year 1 Year 2 Year 3 Property A $10,000 $10,250 $10,500 Property B $11,000…
Allen plans to purchase a house in Lindfield this year, the selling price for the house is $3.8 million. Hewants to borrow 80% of the total capital from the bank using a principal and interest loan and pay 30-yearmonthly mortgage payments. CBA bank received his loan application and provided a valuation report basedon current market conditions. However, the bank valuation is conservative, stating the market value is only$3.5 million, and to lower the risk from the bank’s side, it only approves the loan with an LVR (Loan to ValueRatio) of 70% or less.Assuming that Allen wishes to borrow as much as possible from CBA bank, how much will his monthlypayments be for such a mortgage? The current interest rate from CBA is 3.19% P.A. Ignore other costs.
Woody Lightyear is considering the purchase of a toy store from Andy Enterprises. Woody expects the store will generate net cash flows (cash inflows less cash outflows) of $60,000 per year for 20 years. At the end of the 20 years, he intends to sell the store for $600,000. To finance the purchase, Woody will borrow using a 20-year note that requires 9% interest. Required: What is the maximum amount Woody should offer Andy for the toy store? (Assume all cash flows occur at the end of each year.)
Jenna is considering an investment which has a price of $16,000. She expects to receive $1,000 for 3 years, followed by $1,400 for another 4 years. At the end of the 7th year, Jenna expects to sell the investment for $25,000. If Jenna can borrow money at a rate of 10%, what is the investment's net present value?
An investor plans to purchase a 2-bedroom condo in San Francisco. The price of the property is $300,000. She will have a 15-year 3% APR mortgage with a 20% down payment. The investor will keep the condo in the next 15 years and lease the condo. Suppose the rent collected by the renter will just cover the mortgage payment and other expenses (e.g., condo fee, tax, maintenance). In other words, in- and out- cash flows just cancelled out. The value of the house is expected to inflate by 50%. What is the monthly return to the investor? Group of answer choices 14.377% 1.198% 1.126% 13.508%
Alicia is considering two offers-to-purchase that she has received on a residential building lot she wishes to sell. One is a cash offer of $145,000. The other offer consists of three payments of $49,000-one now, one in six months, and one in twelve months. Which offer has the larger economic value if Alicia can earn 4.4% compounded quarterly on low-risk investments? How much more (in current dollars) is the better offer worth?
Chuck Wells is planning to buy a Winnebago motor home. The listed price is $175,000. Chuck can get a secured add-on interest loan from his bank at 7.45% for as long as 60 months if he pays 15% down. Chuck's goal is to keep his payments below $4,100 per month and amortize the loan in 42 months. 1) Chuck spoke with his bank's loan officer, who has agreed to finance the deal with a 6.95% loan if Chuck can pay 20% down. What will Chuck's new monthly payment (in $) be with these conditions? (Round your answer to the nearest cent.) $ With these conditions, will Chuck be able to pay off the loan and meet his goals? Yes, under these conditions, Chuck will meet his goal.No, the monthly payment is too high. 2) Attempting to reduce his monthly payment further, Chuck continues to negotiate with the seller. If the seller agrees to reduce the listed price by $4,800, finance the deal with a 6.95% loan, and if Chuck pays the 20% down, what will Chuck's monthly payment be (in $)?…
Alex Arnold has just turned 65. He has $100,000 to invest in a retirement annuity. One investment company has offered to pay Alex $10,000 per year for 15 years (payments to begin in one year) in exchange for an immediate $100,000 payment. If Alex accepts the offer from the investment company, what is his expected return on the $100,000 investment (assume a return that is compounded annually)? Present value tables or a financial calculator are required. Select one: a. between 5 and 6 percent b. between 7 and 8 percent c. between 8 and 9 percent d. between 6 and 7 percent

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS