Question

Bruce is considering the purchase of a restaurant named Hard Rock Hollywood. The restaurant is listed for sale at $1,100,000. With the help of his accountant, Bruce projects the net cash flows (cash inflows less cash outflows) from the restaurant to be the following amounts over the next 10 years:   

Years	Amount
1-6	$	90,000		(each year)
7		100,000
8		110,000
9		120,000
10		130,000

Bruce expects to sell the restaurant after 10 years for an estimated $1,200,000. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to 2 decimal places.)

Required:

1-a. Calculate the total present value of the net cash flows if Bruce wants to make at least 12% annually on his investment. (Assume all cash flows occur at the end of each year.)

Present vale=

1-b. Should he purchase the restaurant?

No

or

Yes

Answer 1

Air Present value of cash flows. = 90000 1.12 + 90000 (1.12) 9000e 1-12)3 + 90.000 liku + 99000 loks + + 90.00 + 100000 1.126 (1.12)7 + 110000 + 120000 (11278 129 130000 (1.12) 10 + 1200,000 (1 12 10 = $ 931,186.34 since, the present value of cash flows is less than sales Price. The Bruce should not Purchase restaurant