ACC 307 7-2 Homework 5 - 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 $74,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $440,000. 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 Claussens’ desired rate of return on this investment varies as follows:

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