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    Required Rate of Return on Southwest Cellular Deal

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    Five years ago your firm installed a quick-lube store on Connolly avenue.Southwest cellular would like your store to convert to one of its own outlets. They have made you an offer that nets you $600,000 after taxes. Your required return is 12%.

    a.- You expect $ 75,000 cash flow after tax for the next 10 years. Should you abandon?

    b.- Assume your annual cash flow is $120,000. What is the minimum offer you would accept?

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    Solution Preview

    a.
    without taking their offer the present value of our store will be
    (using financial calculator or excel)
    PMT=75000
    N=10
    i=12%
    CPT PV = 423,766.73

    Therefore, we should ...

    Solution Summary

    This solution helps with a problems regarding business decisions based on cash flows.

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