Question

# Two parcels of land are being considered for a new office building. Both sites cost the...

Two parcels of land are being considered for a new office building. Both sites cost the same amount but differ mainly in their annual property tax assessments. The parcel in City A has a current property tax of ​\$15000 per year. This tax is expected to increase by ​\$400 per year starting at EOY 2. The other​ site, in City​ B, has a property tax of ​\$12000 per year with an anticipated increase of ​\$2,000 per year starting at EOY 2. How much money would have to be set aside today​ (use the PW​ method) for each site to provide for property taxes spanning the next 10​ years? The interest rate is 10​% per year.

Money set aside for the parcel in City​ A, PWA=

Money set aside for the parcel in City​ B, PWB=​

For city A, we convert the cashflows series into a level annual payments of \$14600 for 10 years and an increasing annuity of \$400 starting in Year 1 for 10 years.

For city A, we convert the cashflows series into a level annual payments of \$10000 for 10 years and an increasing annuity of \$2000 starting in Year 1 for 10 years.

We find the Present Worth as follows using the present value of a level annuity and increasing annuity standard formulae -

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