Some land at the edge of blacksburg

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Reference no: EM131962467

You own some land at the edge of Blacksburg. An individual wants to sign a contract where she rents the land from you for 10 years to operate a golf driving range. She is willing to pay $20,000 per year (at the end of each year). She will then buy the land from you at the end of year 10 for $250,000. Alternatively, she is willing to accept a five-year contract, but will only pay $15,000 per year (at the end of each year) and not buy the land at the end of the contract. You suspect that in five years, Blacksburg will have grown enough that a developer will buy your land to build new homes. How much does the developer need to pay you at the end of five years to make the shorter contract the better option? Assume a 4% interest rate.

Reference no: EM131962467

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