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.)
Present Value 10% 10% Future Amount 100,000 90,000 80,000 70,000 60,000 900,000 10% 10% 10% 10% Should the restaurant be purchased? TABLE 1 Future Value of $1 FV = $1(1 + i)" ni 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% 0.0% 10.0% 11.0% 12.0% 20.0% 1.20000 1.44000 1 2 3 4 5 1.01000 1.01500 1.02000 1.02010 1.03022 1.04040 1.03030 1.04568 1.06121 1.04060 1.06136 1.08243 1.05101 1.07728 1.10408 1.02500 1.03000 1.05063 1.06090 1.07689 1.09273 1.10381 1.12551 1.13141 1.15927 1.03500 1.07123 1.10872 1.14752 1.18769 1.04000 1.08160 1.12486 1.16986 1.21665 1.04500 1.05000 1.05500 1.09203 1.10250 1.11303 1.14117 1.15763 1.17424 1.19252 1.21551 1.23882 1.24618 1.27628 1.30696 1.06000 1.12360 1.19102 1.26248 1.33823 1.07000 1.14490 1.22504 1.31080 1.40255 1.08000 1.16640 1.25971 1.36049 1.46933 1.09000 1.10000 1.18810 1.21000 1.295031 33100 1.41158 1.46410 1.53862 1.61051 1.11000 1.23210 1.36763 1.51807 1.68506 1.12000 1.25440 1.40493 1.57352 1.76234 1.72800 2.07360 2.48832 2.98598 6 1.06152 7 1.07214 8 1.08286 9 1.09369 10 1.10462 1.09344 1.12616 1.10984 1.14869 1.12649 1.17166 1.14339 1.19509 1.16054 1.21899 1.15969 1.19405 1.18869 1.22987 1.21840 1.26677 1.24886 1.30477 1.28008 1.34392 1.22926 1.26532 1.27228 1.31593 1.31681 1.36857 1.36290 1.42331 1.41060 1.48024 1.30226 1.34010 1.37884 1.41852 1.50073 1.36086 1.40710 1.45468 1.50363 1.60578 1.42210 1.47746 1.53469 1.59385 1.71819 1.48610 1.55133 1.619091.68948 1.83846 1.55297 1.62889 1.70814 1.790851.96715 1.58687 1.71382 1.85093 1.99900 2.15892 1.67710 1.82804 1.99256 2.17189 2.36736 1.77156 1.87041 1.948722.07616 2.14359 2.30454 2.35795 2.55804 2.59374 2.83942 1.97382 2.21068 2.47596 2.77308 3.10585 3.58318 4.29982 5.15978 6.19174 11 12 13 14 15 1.11567 1.17795 1.12683 1.19562 1.13809 1.21355 1.14947 1.23176 1.16097 1.25023 1.24337 1.31209 1.38423 1.26824 1.34489 1.42576 1.29361 1.37851 1.46853 1.31948 1.41297 1.51259 1.34587 1.44830 1.55797 1.45997 1.53945 1.51107 1.60103 1.56396 1.66507 1.61869 1.73168 1.67535 1.80094 1.62285 1.71034 1.802091.89830 1.69588 1.79586 1.90121 2.01220 1.77220 1.88565 2.00577 2.13293 1.85194 1.97993 2.11609 2.26090 1.93528 2.07893 2.23248 2.39656 2.10485 2.25219 2.40985 2.57853 2.75903 2.33164 2.51817 2.71962 2.93719 3.17217 2.58043 2.81266 3.06580 3.34173 3.64248 2.85312 3.13843 3.45227 3.79750 4.17725 3.15176 3.47855 3.49845 3.89598 3.88328 4.36349 4.31044 4.88711 4.784595.47357 7.43008 8.91610 10.69932 12.83918 15.40702 16 17 18 19 20 1.17258 1.26899 1.18430 1.28802 1.19615 1.30734 1.20811 1.32695 1.22019 1.34686 1.37279 1.40024 1.42825 1.45681 1.48595 1.48451 1.60471 1.73399 1.87298 2.02237 2.18287 2.35526 1.52162 1.65285 1.79468 1.94790 2.11338 2.29202 2.48480 1.55966 1.70243 1.85749 2.02582 2.20848 2.40662 2.62147 1.59865 1.75351 1.92250 2.10685 2.30786 2.52695 2.76565 1.63862 1.80611 1.98979 2.19112 2.41171 2.65330 2.91776 2.54035 2.69277 2.85434 3.02560 3.20714 2.95216 3.42594 3.15882 3.70002 3.379933.99602 3.61653 4.31570 3.86968 4.66096 3.97031 4.59497 4.32763 5.05447 4.717125.55992 5.14166 6.11591 5.60441 6.72750 531089 5.89509 6.54355 7.26334 8.06231 6.13039 6.86604 7.68997 8.61276 9.64629 18.48843 22.18611 26.62333 31.94800 38.33760 21 25 30 40 1.23239 1.36706 1.51567 1.67958 1.86029 2.05943 2.27877 2.52024 2.78596 3.07823 3.39956 4.14056 5.03383 6.10881 7.40025 8.94917 10.80385 46.00512 1.28243 1.45095 1.64061 1.85394 2.09378 2.36324 2.66584 3.00543 3.38635 3.813394.29187 5.427436.84848 8.62308 10.83471 13.58546 17.00006 95.39622 1.34785 1.56308 1.81136 2.09757 2.42726 2.80679 3.24340 3.74532 4.32194 4.98395 5.74349 7.61226 10.06266 13.26768 17.44940 22.89230 29.95992 237.37631 1.48886 1.81402 2.20804 2.68506 3.26204 3.95926 4.80102 5.81636 7.03999 8.51331 10.28572 14.97446 21.72452 31.40942 45.25926 65.0008793.05097 1469.77160 TABLE 3 Future Value of an Ordinary Annuity of $1 FVA= (1+)-1 wi 1 2 3 4 5 1.0% 1.0000 2.0100 3.0301 4.0604 5.1010 1.5% 2.0% 1.000 1.0000 2.01502.0200 3.0452 3.0604 4.0909 4.1216 5.1523 5.2040 2.5% 1.000 2.0250 3.0756 4.1525 5.2563 3.0% 1.0000 2.0300 3.0909 4.1836 5.3091 3.5% 1.000 2.0350 3.1062 4.2149 5.3625 4.0% 1.000 2.0400 3.1216 4.2465 5.4163 4.5% 5.0% 1.0000 1.000 2.0450 2.0500 3.1370 3.1525 4.2782 4.3101 5.47075.5256 5.5% 1.000 2.0550 3.1680 4.3423 5.5811 6.0% 1.000 2.0600 3.1836 4.3746 5.6371 7.0% 8.0% 1.000 1.000 2.0700 2.0800 3.2149 3.2464 4.4399 4.5061 5.75075.8666 0.0% 1.000 2.0900 3.2781 4.5731 5.9847 10.0% 1.000 2.1000 3.3100 4.6410 6.1051 11.0% 1.000 2.1100 3.3421 4.7097 6.2278 12.0% 1.0000 2.1200 3.3744 4.7793 6.3528 20.0% 1.0000 2.2000 3.6400 5.3680 7.4416 6 7 8 9 10 6.1520 7.2135 8.2857 9.3685 10.4622 6.2296 6.3081 6.3877 7.3230 7.43437.5474 8.4328 8.5830 8.7361 9.55939.7546 9.9545 10.7027 10.9497 11.2034 6.4684 6.5502 7.6625 7.7794 8.89239.0517 10.1591 10.3685 11.4639 11.7314 6.6330 6.7169 7.89838.0192 9.2142 9.3800 10.5828 10.8021 12.0061 12.2882 6.8019 8.1420 9.5491 11.0266 12.5779 6.8881 6.9753 7.1533 7.3359 8.26698.3938 8.65408.9228 9.7216 9.8975 10.2598 10.6366 11.2563 11.491311.9780 12.4876 12.8754 13.1808 13.8164 14.4866 7.52337.7156 7.9129 9.2004 9.48729.7833 11.0285 11.435911.8594 13.0210 13.5795 14.1640 15.1929 15.9374 16.7220 8.1152 10.0890 12.2997 14.7757 17.5487 9.9299 12.9159 16.4991 20.7989 25.9587 14.5835 14.9716 15.7836 16.6455 17.5603 18.5312 19.5614 20.6546 11 12 13 14 15 11.5668 12.6825 13.8093 14.9474 16.0969 11.8633 13.0412 14.2368 15.4504 16.6821 12.1687 13.4121 14.6803 15.9739 17.2934 12.4835 13.7956 15.1404 16.5190 17.9319 12.8078 13.1420 13.4864 13.8412 14.2068 14.1920 14.6020 15.0258 15.4640 15.9171 15.6178 16.1130 16.6268 17.1599 17.7130 17.0863 17.6770 18.291918.932119.5986 18.5989 19.2957 20.0236 20.7841 21.5786 16.3856 18.2868 20.2926 22.4087 16.8699 18.8821 21.0151 23.2760 17.8885 20.1406 22.5505 25.1290 18.9771 21.4953 24.2149 27.1521 20.1407 21.3843 22.9534 24.5227 26.0192 27.9750 29.360931.7725 22.7132 26.2116 30.0949 34.4054 24.1331 28.0291 32.3926 37.2797 32.1504 39.5805 48.4966 59.1959 72.0351 16 17.2579 17.9324 18.6393 19.3802 20.1569 17 18.4304 19.2014 20.0121 20.8647 21.7616 18 19.6147 20.4894 21.4123 22.3863 23.4144 19 20.8109 21.7967 22.8406 23.9460 25.1169 20 22.0190 23.1237 24.2974 25.5447 26.8704 20.9710 21.8245 22.7050 23.6975 24.4997 25.6454 26.3572 27.6712 28.2797 29.7781 22.7193 24.7417 26.8551 29.0636 31.3714 23.6575 25.8404 28.1324 30.5390 33.0660 24.6411 25.6725 27.8881 26.9964 28.212930.8402 29.4812 30.9057 33.9990 32.1027 33.7600 37.3790 34.868336.7856 40.9955 30.3243 33.7502 37.4502 41.4463 45.7620 33.0034 36.9737 41.3013 46.0185 51.1601 35.9497 40.5447 45.5992 51.1591 57.2750 39.189942.7533 44.5008 48.8837 50.395955.7497 56.9395 63.4397 64.2028 72.0524 8 7.4421 105.9306 128.1167 154.7400 186.6880 21 23.2392 24.4705 25.7833 27.1833 28.6765 30 34.7849 37.5387 40.5681 43.9027 47.5754 40 48.8864 54.2679 60.4020 67.4026 75.4013 30.2695 31.9692 33.7831 51.6227 56.084961.0071 84.5503 95.0255 107.0303 35.7193 66.4388 120.7998 37.786139.9927 72.4355 79.0582 136.6056 154.7620 44.8652 50.422956.7645 64.0025 94.4608 113.2832 136.3075 164.4940 199.6351 259.0565 337.8824 442.5926 72.2651 $1.6987 225.0256 199.0209 241.3327 1181.8816 581.8261 767.0914 7343.8578 TABLE 4 Present Value of an ordinary Annuity of $1 1- (1+1) PVA wi 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% 0.0% 0.0% 11.0% 12.0% 20.0% 1 2 3 4 5 0.99010 1.97040 2.94099 3.90197 4.85343 0.98522 195588 2.91220 3.85438 4.78264 0.98039 0.97561 194156 1.92742 2.88388 2.85602 3.807733.76197 4.71346 4.64583 0.97087 1.91347 2.82861 3.71710 4.57971 0.96618 0.96154 0.95694 1.899691.886091.87267 2.80164 2.77509 2.74896 3.67308 3.62990 3.58753 4.51505 4.45182 4.38998 0.95238 1.85941 2.72325 3.54595 4.32948 0.94787 1.84632 2.69793 3.50515 4.27028 0.94340 0.93458 1.833391.80802 2.67301 2.62432 3.465113.38721 4.21236 4.10020 0.92593 1.78326 2.57710 3.31213 3.99271 0.91743 0.90909 0.90090 0.89286 1.75911 1.73554 1.71252 1.69005 2.53129 2.48685 2.44371 2.40183 3.23972 3.16987 3.10245 3.03735 3.88965 3.79079 3.69590 3.60478 0.83333 1.52778 2.10648 2.58873 2.99061 6 7 8 9 10 5.79548 6.72819 7.65168 8.56602 9.47130 5.69719 5.60143 6.59821 6.47199 7.485937.32548 8.36052 8.16224 9.22218 8.98259 5.50813 5.41719 6.349396.23028 7.17014 7.01969 7.970877.78611 8.75206 8.53020 5.32855 6.11454 6.87396 7.60769 8.31661 5.24214 6.00205 6.73274 7.43533 8.11090 5.15787 5.07569 5.89270 5.78637 6.595896.46321 7.26879710782 7.91272 7.72173 4.99553 4.91732 4.76654 5.68297 5.58238 5.38929 6.33457 6.20979 5.97130 6.952206.80169 6.51523 7.53763 7.360097.02358 4.62288 5.20637 5.74664 6.24689 6.71008 4.48592 4.35526 4.23054 4.11141 3.32551 5.03295 4.86842 4.71220 4.56376 3.60459 5.53482 5.33493 5.14612 4.96764 3.83716 5.99525 5.75902 5.53705 5.32825 4.03097 6.41766 6.14457 5.88923 5.65022 4.19247 11 12 13 14 15 10.36763 10.07112 11.25508 10.90751 12.13374 11.73153 13.00370 12.54338 13.86505 13.34323 9.78685 9.51421 9.252629.00155 10.57534 10.25776 9.95400 9.66333 11.34837 10.98319 10.63496 10.30274 12.10625 11.69091 11.29607 10.92052 12.84926 12.38138 11.93794 11.51741 8.76048 9.38507 9.98565 10.56312 11.11839 8.52892 9.11858 9.68285 10.22283 10.73955 8.30641 8.86325 9.39357 9.89864 10.37966 8.09254 7.88687 7.49867 8.61852 8.38384 7.94269 9.11708 8.85268 8.35765 9.589659.294988.74547 10.03758 9.71225 9.10791 7.13896 7.53608 7.90378 8.24424 8.55948 6.80519 6.49506 6.20652 5.93770 4.32706 7.16073 6.81369 6.49236 6.19437 4.43922 7.48690 7.10336 6.749876.42355 4.53268 7.78615 7.36669 6.98187 6.62817 4.61057 8.06069 7.60608 7.19087 6.81086 4.67547 16 17 18 19 20 14.71787 14.13126 13.57771 13.05500 15.56225 14.90765 14.29187 13.71220 16.39827 15.67256 14.99203 14.35336 17.22601 16.42617 15.67846 14.97889 18.04555 17.16864 16.35143 15.58916 12.56110 13.16612 13.75351 14.32380 14.87747 12.09412 12.65132 13.18968 13.70984 14.21240 11.65230 12.16567 12.65930 13.13394 13.59033 11.23402 10.83777 11.70719 11.27407 12.15999 11.68959 12.59329 12.08532 13.00794 12.46221 10.46216 10.10590 10.86461 10.47726 11.24607 10.82760 11.60765 11.15812 11.95038 11.46992 9.446658.85137 9.76322 9.12164 10.059099.37189 10.33560 9.60360 10.59401 9.81815 8.31256 7.82371 7.37916 6.97399 4.72956 8.54363 8.02155 7.54879 7.11963 4.77463 8.75563 8.20141 7.70162 7.249674.81219 8.95011 8.36492 7.839297.36578 4.84350 9.12855 8.51356 7.96333 7.46944 4.86958 21 18.85698 25 22.02316 30 25.80771 40 32.83469 17.90014 17.01121 16.18455 20.71961 19.52346 18.42438 24.01584 22.39646 20.93029 29.91585 27.35548 25.10278 15.41502 14.69797 17.41315 16.48151 19.60044 18.39205 23.11477 21.35507 14.02916 15.62208 17.29203 19.79277 13.40472 14.82821 16.28889 18.40158 12.82115 14.09394 15.37245 17.15909 12.27524 13.41393 14.53375 16.04612 11.76408 12.78336 13.76483 15.04630 10.83553 11.65358 12.40904 13.33171 10.01680 9.29224 8.64869 8.07507 7.56200 4.89132 10.67478 9.82258 9.07704 8.42174 7.84314 4.94759 11.25778 10.27365 9.42691 8.69379 8.05518 4.97894 11.92461 10.75736 9.77905 8.95105 8.24378 4.99660
