John and Sally Claussen are contemplating the purchase of a hardware store from John Duggan. The Claussens anticipate that the store will generate
| John and Sally Claussen are contemplating the purchase of a hardware store from John Duggan. The Claussens anticipate that the store will generate cash flows of $73,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an estimated $430,000. 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 | 7 | % | |
| Years 6–10 | 9 | % | |
| Years 11–20 | 11 | % |
| 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.) (Use PV of $1 and PVA of $1) (Round “PV Factors” to 5 decimal places, intermediate and final answer to the nearest dollar amount.) |
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