Bruce is considering the purchase of a restaurant named Hard Rock Hollywood. The

Question

Bruce is considering the purchase of a restaurant named Hard Rock Hollywood. The restaurant is listed for sale at $1,190,000. With the help of his accountant, Bruce projects the net cash flows (cash inflows less cash outflows) from the restaurant to be the following amounts over the next 12 years:

Bruce expects to sell the restaurant after 12 years for an estimated $1,290,000.

Bruce wants to make at least 7% annually on his investment. Calculate the total present value of the net cash flows. (Assume all cash flows occur at the end of each year.)

Total present value=?

Bruce is considering the purchase of a restaurant named Hard Rock Hollywood. The restaurant is listed for sale at $1,190,000. With the help of his accountant, Bruce projects the net cash flows (cash inflows less cash outflows) from the restaurant to be the following amounts over the next 12 years:

Years Amount 1-8 $ 69,000 (each year) 9 80,000 10 91,000 11 102,000 12 113,000

Explanation / Answer

Hi,

Please find the answer as follows:

Net Present Value of Cash Inflows = -1190000+ 69000/(1+.07)^1 + 69000/(1+.07)^2 + 69000/(1+.07)^3 + 69000/(1+.07)^4 + 69000/(1+.07)^5+ 69000/(1+.07)^6 + 69000/(1+.07)^7 + 69000/(1+.07)^8 + 80000/(1+.07)^9 + 91000/(1+.07)^10 + 102000/(1+.07)^11 + 113000/(1+.07)^12 + 1290000/(1+.07)^12 = -16797.7

Thanks.

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