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John Wiggins is contemplating the purchase of a small restaurant. The purchase price listed by the seller is $800,000. John 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 Amount
1-6 $ 80,000

7 70,000

8 60,000

9 50,000

10 40,000

If purchased, the restaurant would be held for 10 years and then sold for an estimated $700,000.

Required:

(a) Determine the present value, assuming that John desires a 10% rate of return on this investment.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9447456

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