Question

c) Carey Company owns a plot of land on which buried toxic wastes have been discovered. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues, Carey wishes to sell the land now. It has located two potential buyers: Buyer A, who is willing to pay $700,000 for the land now, and Buyer B, who is willing to make 20 annual payments of $110,000 each. Assuming that the appropriate rate of interest is 10%, to whom should Carey sell the land? Show calculations.

Answer 1

If you like my explanation, please give a "thumbs up"

Final answers are marked in yellow.

А B с D E F G H 1 2 Carey should sell the land to the Buyer who having more than NPV 3 4 Buyer A Making payment today 5 110000 Buyer B Payment Number of payments Rate of interest 6 NPV 7000001 20 10% 7 8 9 NPV 936492.01 10 11 Highest NPV 936492.01 12 13 Carey should buy from Buyer B 14

For calculation ref:

A B D E F G 1 N Carey should sell the land to the Buyer who having more than NPV 3 4 Buyer A Making payment today 5 6 Buyer B Payment 110000 Number of payments 20 Rate of interest 0.1 NPV 700000 7 00 CD NPV =PV(G7,66,-G5) 10 11 Highest NPV =MAX(C6, 69) 12 13 Carey should buy from=1F(C11=C6, B4,74) 14 15