John and Sally Claussen are contemplating the purchase of a hardware store from John Duggan. The Claussens anticipate that the store will generate cash flows of $72,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $420,000. 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: Years 15 8 % Years 610 10 % Years 1120 12 % Required: What is the maximum amount the Claussens should pay John Duggan for the hardware store? (Assume that all cash flows occur at the end of the year.) (Use PV of $1 and PVA of $1) (Round "PV Factors" to 5 decimal places, intermediate and final answer to the nearest dollar amount. Fill in the following: CLAUSSEN PURCHASE Estimated Cash Flows Yearly Time Interest Cash Flow Period Rate *Factor PVA PV Years 1-5 $70,000 5 8% Years 6-10 70,000 5 10% 5 Years 11-20 70,000 10 12% 5 5 End of Year 20 400,000 10 Maximum Purchase Price * Use the Present and Future Value Tables in the text or enter the proper formula rounded to 5 decimal places

	CLAUSSEN PURCHASE
	Estimated Cash Flows
		Yearly	Time	Interest
		Cash Flow	Period	Rate	*Factor	PVA	PV
	Years 1-5	$ 70,000	5	8%
	Years 6-10	70,000	5	10%
			5
	Years 11-20	70,000	10	12%
			5
			5
	End of Year 20	400,000	10
	Maximum Purchase Price
	* Use the Present and Future Value Tables in the text
	or enter the proper formula rounded to 5 decimal places