(10 pts) Barley Company owns a plot of land on which buriedtoxic wasteshave been...(10...

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Accounting

(10 pts) Barley Company owns a plot of land on which buriedtoxic wastes
have been discovered. Since it will require several years and aconsiderable sum of money before the property is fully detoxifiedand capable of generating revenues, Barley wishes to sell the landnow. It has located two potential buyers: Buyer A, who is willingto pay $350,000 for the land two years from now, and Buyer B, whois willing to make 12 annual payments of $50,000 each, with thefirst payment to be made 4 years from today. Assuming that theappropriate rate of interest is 9%:
What is the present value of Buyer A’s offer? $
What is the present value of Buyer B’s offer? $

Answer & Explanation Solved by verified expert

4.4 Ratings (918 Votes)

Present Value of A's offer = $350,000 * PVF(9%,2 years) = $350,000 * (1/(1.09)^2) = $350,000*0.84168 = $294,588

Present Value of B's offer = $276,470 (Refer Note below)

(Assumed annual payment is made at year end)

Note :

Calculation of Present Value of B's offer :

Year	Annual Payment	PVF@9%	Present Value
1	0	0.917431193	-
2	0	0.841679993	-
3	0	0.77218348	-
4	50000	0.708425211	35,421
5	50000	0.649931386	32,497
6	50000	0.596267327	29,813
7	50000	0.547034245	27,352
8	50000	0.50186628	25,093
9	50000	0.46042778	23,021
10	50000	0.422410807	21,121
11	50000	0.38753285	19,377
12	50000	0.355534725	17,777
13	50000	0.326178647	16,309
14	50000	0.299246465	14,962
15	50000	0.274538041	13,727
		*Present Value*	*2,76,470*

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In: Accounting(10 pts) Barley Company owns a plot of land on which buriedtoxic wasteshave been...(10 pts) Barley Company owns a plot of land on which buriedtoxic wasteshave been discovered. Since it will require several years and aconsiderable sum of money before the property is fully detoxifiedand capable of generating revenues, Barley wishes to sell the landnow. It has located two potential buyers: Buyer A, who is willingto pay $350,000 for the land two years from now, and Buyer B, whois willing to make 12 annual payments of $50,000 each, with thefirst payment to be made 4 years from today. Assuming that theappropriate rate of interest is 9%:What is the present value of Buyer A’s offer? $ __________What is the present value of Buyer B’s offer? $ __________