Rate return as discount rate when making capital decisions

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Reference no: EM13787745

A vacant piece of land next to Ghalid Company's headquarters has become available and the company is considering purchasing the land as an investment. The asking price for the land is $150,000. The annual costs of owning the land (property taxes, insurance etc.) are expected to be $22,000. The company knows of a local farmer interested in leasing the land for a ten-year period. The company would expect to sell the land at the end of the lease. The company believes the land would be worth $800,000 at that time (i.e. at the end of the ten year lease).

How much, per year, would Ghalid have to charge the farmer to make this an acceptable investment (financially) assuming their minimum required rate of return is 15%? (Round to the nearest whole dollar.) Show your work. NOTE: the company uses the minimum required rate of return as the discount rate when making capital decisions.

Reference no: EM13787745

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