The city of Cincinnati gave up the right to collect parking fees over a 30-year period in exchange for a lump sum of $92 million plus a 30-year annuity of $3 million. Suppose that if the city had not entered into that arrangement, it would have collected parking fees the following year of $6 million (net of operating costs), and those fees would have grown at a steady 3% for the next 30 years. At an interest rate of 4%, what is the present value of the parking revenue that the city could have collected? Using the same 4% to value the payments that the city was set to receive in their privatization deal, do you think that the city made the correct decision? Why or why not?© BrainMass Inc. brainmass.com July 17, 2018, 3:40 pm ad1c9bdddf
The solution explains how to work out the time value of money that the city of Cincinnati might have earned on parking fees over 30yrs had they not accepted a lump sum payment instead. Attached as a Word document.