What is the maximum amount claussens should pay john duggan

Assignment Help Cost Accounting

Reference no: EM131884726

Problem

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 $84,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $540,000. 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 6 %

Years 6-10 8 %

Years 11-20 10 %

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,

Reference no: EM131884726

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