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Student Name: Class: Problem 05-05 CLAUSSEN PURCHASE Estimated Cash Flows Yearly Time Interest Cash Flow Period Rate *Factor PVA PV Years 1-5 $ 70,000 Years 6-10 70,000 5 Years 11-20 70,000 10 5 5 End of Year 20 400,000 10 Maximum Purchase Price * Use the Present and Future Value Tables in the text or enter the proper formula rounded to 5 decimal placesP 5-5 Investment decision; varying rates . LO5-3, LO5-8 John and Sally Claussen are considering the purchase of a hardware store from John Duggan. The Claussens anticipate that the store will generate cash flows of $70,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $400,000. The Claussens will finance the investment with a variable rate mortgage. Interest rates will increase twice during the 20-year life of the mortgage. Accordingly, the Claussens' desired rate of return on this investment varies as follows: Years 1-5 8% Years 6-10 10% Years 11-20 12% Required: What is the maximum amount the Claussens should pay John Duggan for the hardware store? (Assume that all cash flows occur at the end of the year.)