Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $920,000. Helga has used pastfinancial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restaurant would be asfollows:Years1-678910Amount$ 92,00082,00072,00062,00052,000If purchased, the restaurant would be held for 10 years and then sold for an estimated $820,000.Required:Determine the present value, assuming that Helga desires a 10 % rate of return on this investment. (Assume that all cash flows occur atthe end of the year.)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)Future Amount$92,00010%82,00010%72,00010%62,00010%52,00010%820,000 10%n= Present ValueShould the restaurant be purchased?

The present value may be determined using formulae that consider future cash flows, time period, and…

Answered: WS: ars -6 7 8 9 10 Amount $ 92,000…

Business

Accounting

WS: ars -6 7 8 9 10 Amount $ 92,000 82,000 72,000 62,000 52,000 rchased the

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $920,000. 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
$ 92,000
82,000
72,000
62,000
52,000
If purchased, the restaurant would be held for 10 years and then sold for an estimated $820,000.
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. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1)
Future Amount
$
92,000
10%
82,000
10%
72,000
10%
62,000
10%
52,000
10%
820,000 10%
n= Present Value
Should the restaurant be purchased?

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