John and Sally Claussen - John and Sally Claussen are...

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John and Sally Claussen are contemplating the purchase of a hardware store from John Duggan. The Claussens anticipate that the store will generate cash flows of$79,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $490,000. 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 Claussensdesired rate of return on thisinvestment varies as follows:Years 158%Years 61010%Years 112012%Required:What is the maximum amount the Claussens should pay John Duggan for the hardwarestore? (Assume that all cash flows occur at the end of the year.) (Use PV of $1 and PVA of $1) (Round "PV Factors" to 5 decimal places, intermediate and final answer to the nearest dollar amount.)Maximum purchase price$ 774,536 0.01%Explanation:The maximum amount that should be paid for the store is the present value of the
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Term
Fall
Professor
MarieMain
Tags
Accounting, McGraw Hill

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