Question

Check my work View previa John Wiggins is considering the purchase of a small restaurant. The purchase price listed by the seller is $920,000. 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 $92,000 82,000 72,000 62,000 52,000 If purchased, the restaurant would be held for 10 years and then sold for an estimated $820,000. 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.) n= Future Amount 92,000 82,000 72,000 62,000 52,000 820,000 Present Value 6 1 $ 42,066 81 10% 10% 10% 10% 10% 10% 9 10 10 42,066 $ No 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	92000	4.355	400660
Year 7	82000	0.513	42066
Year 8	72000	0.467	33624
Year 9	62000	0.424	26288
Year 10	52000	0.386	20072
Year 10	820000	0.386	316520
Totals
Total present value of cash inflow (a)			839230
Total cash outflow (b)			920000
Net Present Value $ (c=a-b)			-80770

The restaurant should not be purchased due to negative present value.