Pay 1060000 in cash immediately 2 pay 466000

1. Pay $1,060,000 in cash immediately.
2. Pay $466,000 immediately and the remainder in 10 annual installments of $81,000, with the first
installment due in one year.
3. Make 10 annual installments of $150,000 with the first payment due immediately.
4. Make one lump-sum payment of $1,790,000 five years from date of purchase.
Required:
a.
Assuming that Harding can borrow funds at an 11% interest rate, determine the present value. (Use
PV
of $1
,
PVA of $1
, and
PVAD of $1
) (Round "PV Factors" to 5 decimal places and final answers to
the nearest dollar amount.)
b. Which is the best alternative for Harding?

5.
Award: 10 out of 10.00 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 $77,000 per year for 20 years. At the end of
20 years, they intend to sell the store for an estimated $470,000. 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:
Years 1–5 7%
Years 6–10 9%
Years 11–20 11%
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.) (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 $ 816,097
rev: 06_15_2012
References
Worksheet Learning Objective: 06-03
Compute the present value of
a single amount.
Learning Objective: 06-07 Compute the present value of an
ordinary annuity, an annuity due, and a deferred annuity.
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 $77,000 per year for 20 years. At the end of
20 years, they intend to sell the store for an estimated $470,000. 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:
Years 1–5 7%