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The Right Brothers are considering the purchase of a bakery from James Bond. The Right Brothers anticipate that the bakery will generate cash flows
The Right Brothers are considering the purchase of a bakery from James Bond. The Right Brothers anticipate that the bakery will generate cash flows of $86,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $560,000. The Right Brothers will finance the investment with a variable rate mortgage. Interest rates will increase twice during the 20-year life of the mortgage. Accordingly, the Right Brothers' desired rate of return on this investment varies as follows: (EV of $1. PV of $1. EVA of $1. PVA of $1, EVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Years 1-51 Years 6-10 8 10% Years 11-20 12 Required: What is the maximum amount the Right Brothers should pay James Bond for the bakery? (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.) Years 1-5 Years 6-10 Years 11-20 Year 201 Total PV of $86,000 cash flow PV of $560,000 selling price Maximum paid for store $ 0 $
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