Question
An engineering company in Texas that owns 250 acres of valuable land has decided to lease...
An engineering company in Texas that owns 250 acres of valuable land has decided to lease the mineral rights to a mining company. The primary objective is to obtain long term income to finance ongoing projects 5 and 19 years from the present time. The engineering company makes a proposal to the mining company that it pay $55,000 per year for 30 years beginning 1 year from now, plus $173,000 5 years from now and $338,000 19 years from now. If the mining company wants to pay off its lease immediately, how much should it pay now if the investment should make 9% per year? Please show all work and steps.
Homework Answers
Answer #1
Amount to pay now = sum of present values of all lease payments
Present value of each lease payment = lease payment / (1 + required rate of return)n
where n = number of years after which the lease payment occurs
Amount to pay now = $670,432
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