Jewels Hair Design Studios would like to purchase another hair salon that is being sold in a neighboring town for $ 500,000. Assume cash flows occur at the end of the year. Based on past volume of sales, Jewels estimates the net cash flows that would be generated by the salon:
Years Cash Flows
1– 3……………. $ 60,000
4……………….. 70,000
5……………….. 80,000
6……………….. 60,000
After six years, Jewels can sell the salon for $ 300,000. If the interest rate on this investment is 8%, compounded annually, should Jewels purchase the salon?