John and Sally Claussen are considering the purchase of a hardware store from John Duggan....
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Accounting
John and Sally Claussen are considering the purchase of a hardware store from John Duggan. The Claussens anticipate that the store will generate cash flows of $70,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $400,000. 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 1-5 = 8%
Years 6-10 = 10%
Years 11-20 = 12%
What is the maximum amount the Claussens should pay John Duggan for the hardware store?
REF Student Na Problem 05-10 THE LOWLIFE COMPANY Calculations Interest Annuity *Factor Annuity Amount Rate Calculation Time Period 4 5 10% PVA 250,000 250.000 250.000 250,000 Part 1 Part 2 Part 3 Part 4 8% $ $ $ $ 10% $ $ Payment Payment Payments Interest 51,351 104,087 3 * Use the Present and Future Value Tables in the text or enter the proper formula rounded to 5 decimal places ON
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