Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $880,000. 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 $ 88,000 78,000 68,000 58,000 48,000 If purchased, the restaurant would be held for 10 years and then sold for an estimated $780,000. 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 S 88,000 78,000 68,000 58,000 48,000 780,000 i= 10% 10% 10% 10% 10% 10% n= Present Value Should the restaurant be purchased?

Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $880,000. 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 $ 88,000 78,000 68,000 58,000 48,000 If purchased, the restaurant would be held for 10 years and then sold for an estimated $780,000. 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 S 88,000 78,000 68,000 58,000 48,000 780,000 i= 10% 10% 10% 10% 10% 10% n= Present Value Should the restaurant be purchased?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 9E: Each of the following scenarios is independent. All cash flows are after-tax cash flows. Required:...

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