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During the past year, Stacy Mcgill planted a new vineyard on 150 acres of land that she leases for \$30,000 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 can be sold for \$60,000 each year. For the next 20 years (11-30) she expects the harvest will provide annual revenues of \$110,000. But during the last 10 years (31-40) 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, 6-40, 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.

Instructions:
Dick Button has offered to buy Stacy's vineyard business by assuming the 40-year lease. On the basis of the current value of the business, what is the minimum price Stacy should accept?

#### Solution Summary

The solution explains how to determine the current value of business

\$2.19