Question

Bruce is considering the purchase of a restaurant named Hard Rock Hollywood. The restaurant is listed for sale at $1,000,000. With the help of his accountant, Bruce projects the net cash flows (cash inflows less cash outflows) from the restaurant to be the following amounts over the next 10 years:
Years Amount
1–6 ........ $100,000 (each year)
7 ........ 110,000
8 ........ 120,000
9 ........ 130,000
10 ........ 140,000
Bruce expects to sell the restaurant after 10 years for an estimated $1,300,000.

Required:
If Bruce wants to make at least 11% annually on his investment, should he purchase the restaurant? (Assume all cash flows occur at the end of each year.)



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  • CreatedJuly 15, 2014
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