Reference no: EM131809747
According to the following problem, the answer is $47,111.28. I need step by step instructions on how the number was arrived at. Thank you!!
During the past year, Stacy McGill planted a new vineyard on 150 acres of land that she leases for $31,060 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation.
The vineyard will bear no grapes for the first 5 years (1-5). In the next 5 years (6-10), Stacy estimates that the vines will bear grapes that can be sold for $61,290 each year. For the next 20 years (11-30), she expects the harvest will provide annual revenues of $111,160. But during the last 10 years (31-40) of the vineyard's life, she estimates that revenues will decline to $83,280 per year.
During the first 5 years, the annual cost of pruning, fertilizing, and caring for the vineyard is estimated at $9,410; during the years of production, 6-40, these costs will rise to $12,780 per year. The relevant market rate of interest for the entire period is 11%. Assume that all receipts and payments are made at the end of each year.
Required:
Dick 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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