Question

4 The Claussens are considering the purchase of a hardware store. The Claussens anticipate that the store will generate cash flows of $86,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $560,000. The Claussens will finance 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: 1.28 points Years 1-5 Years 6-10 Years 11-20 8% 10% 12% eBook Required: References What is the maximum amount the Claussens should pay for the hardware store? (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) PV of $86.000 cash flow PV of $560,000 selling price Maximum paid for store Years 1-5 $ Years 6-10 343,373 202,425 Years 11-20 Year 20 Total $ 545,798 + $ 545,798

          4
The Claussens are considering the purchase of a hardware store. The Claussens anticipate that the store will generate cash flows of
$86,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $560,000. The Claussens will
finance 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:
1.28
points
Years 1-5
Years 6-10
Years 11-20
8%
10%
12%
eBook
Required:
References
What is the maximum amount the Claussens should pay for the hardware store? (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)
PV of $86.000 cash
flow
PV of $560,000
selling price
Maximum paid for
store
Years 1-5
$
Years 6-10
343,373
202,425
Years 11-20
Year 20
Total
$
545,798 +
$
545,798

4
The Claussens are considering the purchase of a hardware store. The Claussens anticipate that the store will generate cash flows of
86,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated560,000. The Claussens will
finance 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:
1.28
points
Years 1-5
Years 6-10
Years 11-20
8%
10%
12%
eBook
Required:
References
What is the maximum amount the Claussens should pay for the hardware store? (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 of1, FVA of 1, PVA of1, FVAD of 1 and PVAD of1)
PV of 86.000 cash
flow
PV of560,000
selling price
Maximum paid for
store
Years 1-5
Years 6-10
343,373
202,425
Years 11-20
Year 20
Total
545,798 +
545,798

Added by Lorena A.

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