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.
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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