On April 1, 2024, Antonio purchased appliances from the Acme Appliance Company for $2,200. In order to increase sales, Acme allows customers to pay in installments and will defer any payments for six months. Antonio will make 18 equal monthly payments, beginning October 1, 2024. The annual interest rate implicit in this agreement is 24%,
On April 1, 2024, Antonio purchased appliances from the Acme Appliance Company for $2,200. In order to increase sales, Acme allows customers to pay in installments and will defer any payments for six months. Antonio will make 18 equal monthly payments, beginning October 1, 2024. The annual interest rate implicit in this agreement is 24%,
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:On April 1, 2024, Antonio purchased appliances from the Acme Appliance Company for $2,200. In order to increase sales, Acme
allows customers to pay in installments and will defer any payments for six months. Antonio will make 18 equal monthly payments,
beginning October 1, 2024. The annual interest rate implicit in this agreement is 24%.
Transcribed Image Text:Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $1,000,000. Helga 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:
Years
1-6
7
8
9
10
Amount
$ 100,000
90,000
80,000
70,000
60,000
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 Helga desires a 10 % rate of return on this investment. (Assume that all cash flows occur at
the end of the year.)
Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar amount. Use tables, Excel, or a
financial calculator. (EV.of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1)
$
Future Amount
100,000
90,000
80,000
70,000
60,000
900,000
IM
10%
10%
10%
10%
10%
10%
no Present Value
Should the restaurant be purchased?
$
0
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