Question
Future Amount i = n = Present Value $ 89,000 11% 79,000 11% 69,000 11% 59,000 11% 49,000 11% 790,000 11% $ 0 Should the
Future Amount
i =
n =
Present Value
$
89,000
11%
79,000
11%
69,000
11%
59,000
11%
49,000
11%
790,000
11%
$
0
Should the restaurant be purchased?
Question Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $890,000. 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
Amount
1-6
$ 89,000
7
79,000
8
69,000
9
59,000
10
49,000
If purchased, the restaurant would be held for 10 years and then sold for an estimated $790,000.
Required:
Determine the present value, assuming that Helga desires an 11% rate of return on this investment. (Assume that all cash flows occur at the end of the year.)
| Future Amount | i = | n = | Present Value |
| $ 89,000 | 11% |
|
|
| 79,000 | 11% |
|
|
| 69,000 | 11% |
|
|
| 59,000 | 11% |
|
|
| 49,000 | 11% |
|
|
| 790,000 | 11% |
|
|
|
|
|
| $ 0 |
| Should the restaurant be purchased? |
|
|
|
Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $890,000. 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 | Amount |
1-6 | $ 89,000 |
7 | 79,000 |
8 | 69,000 |
9 | 59,000 |
10 | 49,000 |
If purchased, the restaurant would be held for 10 years and then sold for an estimated $790,000.
Required:
Determine the present value, assuming that Helga desires an 11% rate of return on this investment. (Assume that all cash flows occur at the end of the year.)
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Fundamental Accounting Principles Volume II
Authors: Kermit Larson, Tilly Jensen, Heidi Dieckmann
16th Canadian edition
978-1260305838
