Deferred Annuity (SIA, adapted) Lewis Stanfield is considering the acquisition of a business enterprise. To purchase this business he would have to pay

$130,000 now. Stanfield wants to retire in 20 years’ time. He predicts that the net cash receipts from this business will be $25,000 per year for the first 15 years and $20,000 per year for the last five years. He believes that the business could be sold at the end of the 20-year period for $30,000. In addition, he feels that certain capital replacements and improvements would be necessary and this should amount to $2,000 a year for the first five years, $3,000 a year for the next five years, $4,000 a year for the next seven years, and nothing in the last three years.

Stanfield has excluded any compensation to himself from the above data. However, should he acquire the business, he would have to leave his present job in which he earns $9,000 a year. To finance the acquisition of this business, he would liquidate his present investments with a comparable risk factor which yields a return of 10 percent before taxes.

Advise Stanfield as to whether or not it is advisable to acquire the business on the basis of the information provided. Present full details of all calculations.

Ignore income taxes.

. What additional information would you like to have had to include in your decision process?  L01