Question

Oriole Energy Company owns several gas stations. Management is looking to open a new station in the western suburbs of Baltimore. One possibility that managers at the company are evaluating is to take over a station located at a site that has been leased from the county. The lease, originally for 99 years, currently has 73 years before expiration. The gas station generated a net cash flow of $87,280 last year, and the current owners expect an annual growth rate of 6.3 percent. If Oriole Energy uses a discount rate of 12.7 percent to evaluate such businesses, what is the present value of this growing annuity? (Round factor values to 6 decimal places, e.g. 1.521253 and final answer to 2 decimal places, e.g. 15.21.)

Present value

$

Answer 1

The answer is as follows: