The Claussens are considering the purchase of a hardware store. The Claussens anticipate that the store will generate cash flows of$83,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $530,000. The Claussens willfinance 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:Years 1-5Years 6-10Years 11-20Required:8%10%12%What is the maximum amount the Claussens should pay for the hardware store? (Assume that all cash flows occur at the end of theyear.)Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar amount. Use tables, Excel, or afinancial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)PV of $83,000 cashflowPV of $530,000selling priceMaximum paid forstoreYears 1-5Years 6-10$331,395214,136Years 11-2026,724Year 20Total$572,255 +$572,255

Step 1: Present Value of Cash Flows for Years 1-5- Annual Cash Flow: $83,000- Rate of Return: 8%-…

Answered: The Claussens are considering the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 16P

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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 $70,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $400,000. 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: Years 1–5 8%Years 6–10 10%Years 11–20 12% Required:What is the maximum amount the Claussens should pay John Duggan for the hardware store? (Assume that all cash flows occur at the end of the year.)
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…
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You are considering investing in a rental property. Market rent for similar properties is 1, 500 a month (18,000 a year). Maintenance costs, property tax and insurance add up to 4, 000 a year. You expect rent and cost to increase at 5% a year. You plan to hold the property for 10 years and expect to sell it at the end of 10 years for $250,000. How much should you pay for it now if you're asking for a return of 15% ?Question 13 options: $152, 134.01 $132, 058.94 $169, 321.37 $145, 426.88

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