Problem 6.23 (Solution Video) Oriole Energy Company owns several gas stations. M
ID: 2818836 • Letter: P
Question
Problem 6.23 (Solution Video) Oriole 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 $96,120 last year, and the current owners expect an annual growth rate of 6.3 percent. If Oriole Energy uses a discount rate of 12.8 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 sExplanation / Answer
Hello Sir/ Mam
YOUR REQUIRED PRESENT VALUE = $1,551,278.59
Revenue Last Year = $96,120
Growth Rate = 6.3%
Discount Rate = 12.8%
Term of lease left = 73 years
THE PRESENT VALUE SCHEDULE :
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Year Annual Cash Flows Present Value Factor Present Value 1 $102,175.56 0.886525 $90,581.19 2 $108,612.62 0.785926 $85,361.48 3 $115,455.22 0.696743 $80,442.61 4 $122,728.89 0.61768 $75,807.18 5 $130,460.81 0.547589 $71,438.91 6 $138,679.85 0.485451 $67,322.27 7 $147,416.68 0.430364 $63,442.83 8 $156,703.93 0.381529 $59,787.09 9 $166,576.27 0.338235 $56,341.93 10 $177,070.58 0.299853 $53,095.14 11 $188,226.03 0.265827 $50,035.56 12 $200,084.27 0.235663 $47,152.46 13 $212,689.57 0.208921 $44,435.32 14 $226,089.02 0.185213 $41,874.63 15 $240,332.62 0.164196 $39,461.66 16 $255,473.58 0.145564 $37,187.76 17 $271,568.42 0.129046 $35,044.82 18 $288,677.23 0.114403 $33,025.54 19 $306,863.89 0.101421 $31,122.44 20 $326,196.32 0.089912 $29,328.96 21 $346,746.68 0.079709 $27,638.83 22 $368,591.73 0.070664 $26,046.17 23 $391,813.00 0.062646 $24,545.52 24 $416,497.22 0.055537 $23,131.01 25 $442,736.55 0.049235 $21,798.13 26 $470,628.95 0.043648 $20,542.01 27 $500,278.58 0.038695 $19,358.28 28 $531,796.13 0.034304 $18,242.73 29 $565,299.28 0.030411 $17,191.32 30 $600,913.14 0.02696 $16,200.62 31 $638,770.66 0.023901 $15,267.26 32 $679,013.22 0.021189 $14,387.61 33 $721,791.05 0.018785 $13,558.84 34 $767,263.88 0.016653 $12,777.25 35 $815,601.51 0.014763 $12,040.73 36 $866,984.40 0.013088 $11,347.09 37 $921,604.42 0.011603 $10,693.38 38 $979,665.50 0.010286 $10,076.84 39 $1,041,384.43 0.009119 $9,496.38 40 $1,106,991.65 0.008084 $8,948.92 41 $1,176,732.12 0.007167 $8,433.64 42 $1,250,866.24 0.006354 $7,948.00 43 $1,329,670.82 0.005633 $7,490.04 44 $1,413,440.08 0.004993 $7,057.31 45 $1,502,486.80 0.004427 $6,651.51 46 $1,597,143.47 0.003924 $6,267.19 47 $1,697,763.51 0.003479 $5,906.52 48 $1,804,722.61 0.003084 $5,565.76 49 $1,918,420.13 0.002734 $5,244.96 50 $2,039,280.60 0.002424 $4,943.22 51 $2,167,755.28 0.002149 $4,658.51 52 $2,304,323.86 0.001905 $4,389.74 53 $2,449,496.27 0.001689 $4,137.20 54 $2,603,814.53 0.001497 $3,897.91 55 $2,767,854.85 0.001327 $3,672.94 56 $2,942,229.70 0.001177 $3,463.00 57 $3,127,590.17 0.001043 $3,262.08 58 $3,324,628.35 0.000925 $3,075.28 59 $3,534,079.94 0.00082 $2,897.95 60 $3,756,726.98 0.000727 $2,731.14 61 $3,993,400.78 0.000644 $2,571.75 62 $4,244,985.03 0.000571 $2,423.89 63 $4,512,419.08 0.000506 $2,283.28 64 $4,796,701.48 0.000449 $2,153.72 65 $5,098,893.68 0.000398 $2,029.36 66 $5,420,123.98 0.000353 $1,913.30 67 $5,761,591.79 0.000313 $1,803.38 68 $6,124,572.07 0.000277 $1,696.51 69 $6,510,420.11 0.000246 $1,601.56 70 $6,920,576.58 0.000218 $1,508.69 71 $7,356,572.91 0.000193 $1,419.82 72 $7,820,037.00 0.000171 $1,337.23 73 $8,312,699.33 0.000152 $1,263.53 Total $1,551,278.59