Southern Tours is considering acquiring Holiday Vacations. Management believes Holiday Vacations can generate cash flows of $218,000, $224,000, and $235,000 over the next three years, respectively. After that time, they feel the business will be worthless. If the desired rate of return is 14.4 percent, what is the maximum Southern Tours should pay today to acquire Holiday Vacations?

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Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.