Bruce is considering the purchase of a restaurant named Hard Rock Hollywood. The
ID: 2463423 • Letter: B
Question
Bruce is considering the purchase of a restaurant named Hard Rock Hollywood. The restaurant is listed for sale at $1,050,000. With the help of his account, Bruce projects the net cash flows(cash inflows less cash outflows) from the restaurant to be the above amounts over the next 10 years.
Calculate the total present value of the net cash flows if Bruce wants to make at least 12% annually on his investment(assume all cash flows occur at the end of each year)
Years Amount 1-6 $85,000 7 95,000 8 105,000 9 115,000 10 125,000Explanation / Answer
Statement showing Cash flows Particulars Time PVf@12% Amount PV Cash Outflows - 1.00 (1,050,000.00) (1,050,000.00) PV of Cash outflows=PVCO (1,050,000.00) Cash inflows 1.00 0.8929 85,000.00 75,892.86 Cash inflows 2.00 0.7972 85,000.00 67,761.48 Cash inflows 3.00 0.7118 85,000.00 60,501.32 Cash inflows 4.00 0.6355 85,000.00 54,019.04 Cash inflows 5.00 0.5674 85,000.00 48,231.28 Cash inflows 6.00 0.5066 85,000.00 43,063.65 Cash inflows 7.00 0.4523 95,000.00 42,973.18 Cash inflows 8.00 0.4039 105,000.00 42,407.74 Cash inflows 9.00 0.3606 115,000.00 41,470.15 Cash inflows 10.00 0.3220 125,000.00 40,246.65 PV of Cash Inflows = PVCI 516,567.34 NPV = PVCI - PVCO (533,432.66)
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