Question

John Wiggins is considering the purchase of a small restaurant. The purchase price listed by the seller is $960,000. John has used past financial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restaurant would be 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 1-6 7 8 9 10 Amount $96,000 86,000 76, see 66, 56,000 I purchased the restaurant would be held for 10 years and then sold for an estimated $860,000 Required: Determine the present value, assuming that John desires a 10% rate of return on this investment (Assume that all cash flows occur at the end of the year.) (Do not round intermediate calculations: Round your final answers to nearest whole dollar amount.) - Present Value Future Amount 96 000 36000 76.000 65,000 56.000 860 000 10% 10% 10% 10% 10% 10% Should the restaurant be purchased?

Answer 1

Answer-

Calculation of Investment's Net Present Value
	Net Cash Flows $ (a)	Present Value of 1 at 10% (b)	Present Value of cash flows (c=a*b) $
Year 1 to Year 6	96000	4.3553	418109
Year 7	86000	0.5132	44135
Year 8	76000	0.4665	35454
Year 9	66000	0.4241	27991
Year 10	56000	0.3855	21588
Year 10	860000	0.3855	331530
Totals
Total present value of cash inflow (a)			878807
Total cash outflow (b)			960000
Net Present Value $ (c=a-b)			-81193

The resturant should not be purchased.