Question

Parrino, Fundamentals of Corporate Finance, 4e Help I System Announcements PRINTER VERSIONBACK NEXT Problem 6.23 (Solution Video) 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 $89,970 last year, and the current owners expect an annual 6.3 percent. If Sandhill Energy uses a discount rate of 14.3 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 s

Answer 1

Cash Flow generated Last year = $89,970

Growth Rate = 6.3%

Discount Rate = 14.3%

Time Period = 73 years

PV of Growing Annuity,

Cash flow generated this year = $95,638.11

$PV = C/(r-g) [1-((1+g)/(1+r))^n]$

PV = $1,189,490.96