John Wiggins is contemplating the purchase of a small restaurant. The purchase price listed by...
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Accounting
John Wiggins is contemplating the purchase of a small restaurant. The purchase price listed by the seller is $840,000. 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:
Year 1-6 $84,000
Year 7 $74,000
Year 8 $64,000
Year 9 $54,000
Year 10 $44,000
If purchased, the restaurant would be held for 10 years and then sold for an estimated $740,000. Required: Determine the present value, assuming that John desires a 11% rate of return on this investment, (Assume that all cash flows occur at the end of the year.)
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