Question

John Wiggins is considering the purchase of a small restaurant. The purchase price listed by the seller is $1,000,000. John 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: (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 Amount
1-6 $ 100,000
7 90,000
8 80,000
9 70,000
10 60,000


If purchased, the restaurant would be held for 10 years and then sold for an estimated $900,000.

Required:
Determine the present value, assuming that John desires a 10% rate of return on this investment. (Assume that all cash flows occur at the end of the year.) (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
  TABLE 1 Future Value of $1 V = $1(1+i^ n/i 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0%TABLE 2 Present Value of $1 $1 PV (1 n/i 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12TABLE 3 Future Value of an Ordinary Annuity of $1 (1- FVA 10.0% 11.0% 12.0% 5.0% 5.5% 20.0% wi 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%TABLE 4 Present Value of an Ordinary Annuity of $1 1- (1+) PVA= 7.0% 12.0% пл 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.TABLE 5 Future Value of an Annuity Due of $1 (1+-1 x (1+ FVAD 1.0% 2.5% 9.0% 1.5% 2.0% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 7.TABLE 6 Present Value of an Annuity Due of $1 (1+0 PVAD x (1) n/i 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 5.0% 5.5% 6.0% 7.0% 8.0% 9.0%i = Present Value Future Amount n = $ 100,000 10% 90,000 10% 80,000 10% 10% 70,000 60,000 10% 10% 900,000 $ 0 Should the rest

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Answer #1
Future amount i= n Present value
100000 10% 4.3553 435530
90000 10% 0.5132 46188
80000 10% 0.4665 37320
70000 10% 0.4241 29687
60000 10% 0.3855 23130
900000 10% 03855 346950
$918,805
Should the restaurant be purchased ? NO
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