Your company owns a large parcel of land in a neighboring city, which was purcha

Question

Your company owns a large parcel of land in a neighboring city, which was purchased several years ago for $68,000 for a warehouse, which is no longer needed. Another company has offered you $20,000 per year for 20 years for the land. Due to some unusual financing arrangements your counter offer is for the $20,000 per year for 20 years plus an additional $10,000 six years from now and an additional $15,000 16 years from now. The other company agrees to the additional payments in years 6 and 16 but only if you agree to delay the start of the 20 equal $20,000 payments until three years from the date of agreement. By now, you and your boss are thoroughly confused. What is the present worth of each of the deals? Your company uses a MARR of 15% for this sort of analysis.

Explanation / Answer

present worth of $20,000 per year for 20 years for the land = 20000*PVIFA(15%,20) = 20000*6.26 = 125200 present worth of counter offer by you = 20000*PVIFA(15%,20) + 10000/1.15^6 + 15000/1.15^16 = 131126.2 present worth of other companies offer = 20000*PVIFA(15%,17) /1.15^3 + 10000/1.15^6 + 15000/1.15^16 = 85354.21

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