Question

Problem 6.23 (Solution Video) Your answer is incorrect. Try again. Sandhill 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 $85,700 last year, and the current owners expect an annual growth rate of 6.3 percent. If Sandhill Energy uses a discount rate of 13.4 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 va1196280.13

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Answer 1

Present value Here 4 13.40% 73 1 13.40% 73 6.30% 91,099 1Interest rate per annum 2 Number of vears 7 8 3 Number of compoundings per per annum 4 1+3 Interest rate per period (r) 10 Growth rate (g) First payment (P | -85700*(1+6.3% 12 13 14 Present value 1,271,645.78 (91099.1イ13.4%-6.3%))x(1-((1+6.3%)÷(1+13.4%))^73)