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Prob 6-6 - Assig nment Pr int View Score 100 6 out of 100...

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2/25/14 Assignment Print View ezto.mhecloud.mcgraw-hill.com/hm_accounting.tpx?todo=printviewSingle 1/2 Score: 100 out of 100 points (100%) 6. aw ard: 25 out of 25.00 points 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 $70,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $400,000. 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 ( FV of $1 , PV of $1 , FVA of $1 , PVA of $1 , FVAD of $1 and PVAD of $1 ) (Use appropriate factor(s) from the tables provided.) Years 1–5 8% Years 6–10 10% Years 11–20 12% Required: What is the maximum amount the Claussens should pay John Duggan for the hardware store? (Assume that all cash flows occur at the end of the year.) $ $ $ $ PV of $70,000 cash flow PV of $400,000 selling price Maximum paid
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