The following terms will be used interchangeably:

minimum rate of return, desired rate of return, required rate of return, hurdle rate, cutoff rate, discount rate, cost of capital.

Let us assume that the 7-Eleven owner has a hurdle rate of 12%

What is the most you would pay? Give a detailed explanation as to why.

Remember to show all your work.

Net Present Value (NPV)
Interest Rate:	12%
	Year		Cash Flows		PV Factor		Present Value
Initial Outflow	0		($2,000)	*	1.000000	=	($2,000)
Annual Inflow	1		$400	*	0.893	=	$357
Annual Inflow	2		$400	*	0.797	=	$319
Annual Inflow	3		$400	*	0.712	=	$285
Annual Inflow	4		$400	*	0.636	=	$254		$1,949
Annual Inflow	5		$400	*	0.567	=	$227
Annual Inflow	6		$400	*	0.507	=	$203
Salvage Inflow	6		$600	*	0.507	=	$304
Net Inflow			$1,000				($51)
							NPV

Answer rating: 100% (QA)

To determine the most you would pay for this investment we need to calculate the Net ... View the full answer