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 $950,000. 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 10 years:

Bruce expects to sell the restaurant after 10 years for an estimated $1,100,000. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to 2 decimal places.)

Calculate the total present value of the net cash flows if Bruce wants to make at least 10% annually on his investment. (Assume all cash flows occur at the end of each year.)

Total Present Value: _____?_____

Years                 Amount 1-6     $ 80,000 (each year) 7     90,000 8     100,000 9     110,000 10     120,000

Bruce expects to sell the restaurant after 10 years for an estimated $1,100,000. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to 2 decimal places.)

Calculate the total present value of the net cash flows if Bruce wants to make at least 10% annually on his investment. (Assume all cash flows occur at the end of each year.)

Total Present Value: _____?_____

Explanation / Answer

Present value = (PVAF@10%,CF 6 )+(PVF@10%,7*CF7).......(PVF@10%,10*Total cash flow)

    = (4.35526 * 80000)+(.51316*90000)+(.46651*100000)+(.42410*110000)+(.38554* 1220000)

   = 348420.8+ 46184.4+ 46651+ 46651+ 470358.8

   = $ 958266

**Total cash flow for year 10 = 120000+1,100,000

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