Reference no: EM132945186

Question - Daisy Tara planted a new vineyard in the year 2020 on a 150 acres of land that she leases for P30,000 a year. She has asked you as her accountant to assist her in determining the value of her vineyard operation as of January 1, 2021 given the following assumption on a 40-year lease. The vineyard will bear no grapes for the first 5 years (1-5). In the next 5 years (6-10), Daisy estimates that the vines will bear grapes that can be sold for P60,000 each year. For the next 20 years (11-30) she expects the harvest will provide annual revenues of P110,000. But during the last 10 years (31-40) of the vineyard's life, she estimates that the revenues will decline to P80,000 per year. During the first 5 years the annual cost of pruning, fertilizing, and caring for the vineyard is estimated at P9,000; during the years of production, 6-40 years, these costs will rise to P12,000 per year. The relevant market rate of interest for the entire period is 12%. Assume all receipts and payments are made at the end of each year.

Required - On the basis of the current value of the business as of January 1, 2021, what are the net present values of the expected future cash flows for the following periods as of January 01, 2021?

a) 1-5 years

b) 6-10 years

c) 11-30 years

d) 30-40 years