Response to the following problem:
Bruce is considering the purchase of a restaurant named Hard Rock Hollywood. The restaurant is listed for sale at $1,190,000. With the help of his accountant, Bruce projects the net cash flows (cash inflows less cash outflows) from the restaurant to be the following amounts over the next 12 years:
Years Amount
1-8 $ 69,000 (each year)
9 80,000
10 91,000
11 102,000
12 113,000
Bruce expects to sell the restaurant after 12 years for an estimated $1,290,000.
Required:
Bruce wants to make at least 7% annually on his investment. Calculate the total present value of the net cash flows. (Assume all cash flows occur at the end of each year.)