Based on the various costs that Stacy McGill will incur, and the present value of her revenue, the minimum price that Stacy should accept from Ric Button is $376,595.
<h3>What amount should Stacy accept?</h3>
This should be the net present value of her vineyard over 40 years.
Present value of revenue from 1 - 5 years is $0 because no grapes will be grown in the vineyard.
Present value of revenue from 6 - 10 years;
= 60,000 x 3.14772
= $188,863.20
Present value of revenue from 11 - 30 years
= 110,000 x 6.40475
= $704,522.50
Present value of revenue from 31 to 40 years:
= 80,000 x 1,28146
= $102,516.80
Then find the present value of the expenses:
Present value of expenses from 1 - 5 years:
= 9,000 x 4.21236
= $37,911.28
Present value of expenses from 6 - 40 years:
= 12,000 x 10.83393
= $130,007.16
Present value of lease:
= 30,000 x 15.04629
= $451,388.70
The minimum amount Stacy should sell for is therefore:
= 188,863.20 + 704,522.50 + 102,516.80 - 37,911.28 - 130,007.16 - 451,388.70
= $376,595.
Question is:
Eric Button has offered to buy Stacy’s vineyard business by assuming the 40-year lease. On the basis of the current value of the business, what is the minimum price Stacy should accept?
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