Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $890,000. Helga 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: Years 1-6 7 8 9 10 Amount $ 89,000 79,000 69,000 59,000 49,000 If purchased, the restaurant would be held for 10 years and then sold for an estimated $790,000. Required: Determine the present value, assuming that Helga desires an 11% rate of return on this investment (Assume that all

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $890,000. Helga 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:
Years
1-6
7
8
9
10
Amount
$ 89,000
79,000
69,000
59,000
49,000
If purchased, the restaurant would be held for 10 years and then sold for an estimated $790,000.
Required:
Determine the present value, assuming that Helga desires an 11% rate of return on this investment. (Assume that all cash flows occur at
the end of the year.)
Transcribed Image Text:Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $890,000. Helga 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: Years 1-6 7 8 9 10 Amount $ 89,000 79,000 69,000 59,000 49,000 If purchased, the restaurant would be held for 10 years and then sold for an estimated $790,000. Required: Determine the present value, assuming that Helga desires an 11% rate of return on this investment. (Assume that all cash flows occur at the end of the year.)
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