Question
The Claussens are considering the purchase of a hardware store. The Claussens anticipate that the store will generate cash flows of $85,000 per year for
The Claussens are considering the purchase of a hardware store. The Claussens anticipate that the store will generate cash flows of $85,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $550,000. 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 | 7% |
---|---|
Years 610 | 9% |
Years 1120 | 11% |
Required:
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)
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