Question

A salt mine you inherited will pay you $25,000 per year for 25 years, with the first payment being made today. If you think a fair return on the mine is 7.5%, how much should you ask for it if you decide to sell it

Answer 1

Answer: $299574.17

Step-by-step explanation:

From the question, we are given the information that a salt mine inherited will pay $25,000 per year for 25 years, with the first payment being made today. If the fair return on the mine is 7.5%, the amount that should be asked for it's to be sold goes thus:

Periodic amount = $25000

Return on mine = 7.5%

Number of years = 25

Selling amount will then be:

= 25000 + [-PV(7.50%,24,25000,0)]

= 25000 + [-PV(0.075,24,25000,0]

= $299574.17

=