Woody Lightyear is considering the purchase of a toy store from Andy Enterprises

Question

Woody Lightyear is considering the purchase of a toy store from Andy Enterprises. Woody expects the store will generate net cash flows (cash inflows less cash outflows) of $59,000 per year for 15 years. At the end of the 15 years, he intends to sell the store for $590,000. To finance the purchase, Woody will borrow using a 15-year note that requires 8% interest (ROSI, PVOfS1, FVA of S1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Round your answer to 2 decimal places.) Required: What is the maximum amount Woody should offer Andy for the toy store? (Assume all cash flows occur at the end of each year.) Total present

Explanation / Answer

Store is expected to generate annual cash flows of $59,000 for 15 years and $590,000 at the end of 15 years

Annual Interest Rate = 8%

NPV = $59,000 * PV of an Annuity of $1 (8%, 15) + $590,000 * PV of $1 (8%, 15)
NPV = $59,000 * 8.55948 + $590,000 * 0.31524
NPV = $691,000.92

So, Woody will pay a maximum amount of $691.000.92 for this shop

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