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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