Reference no: EM131286574
During the past year, Stacy McGill planted a new vineyard on 150 acres of land that she leases for $31,500 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation.
The vineyard will bear no grapes for the first 5 years (1–5). In the next 5 years (6–10), Stacy estimates that the vines will bear grapes that could be sold for $61,500 each year. For the next 20 years (11–30), she expects the harvest will provide annual revenues of $101,000. However, during the last 5 years (31–35) of the vineyard’s life, she estimates that revenues will decline to $80,000 per year.
During the first 5 years, the annual cost of pruning, fertilizing, and caring for the vineyard is estimated at $9,000; during the years of production, 6–35, these costs will rise to $12,000 per year. The relevant market rate of interest for the entire period is 12%. Assume that all receipts and payments are made at the end of each year.
Required:
Dick Button has offered to buy Stacy’s vineyard business by assuming the 35-year lease. On the basis of the current value of the business, what is the minimum price Stacy should accept?
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: During the past year, Stacy McGill planted a new vineyard on 150 acres of land that she leases for $31,500 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation. Dick Button has offered to buy ..
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