2 Financial Mgmt

We use the Pearson book: Foundations of Finance, The Logic and Practice of Financial Management by Keown, Martin, and Petty.

Consider you are the owner of a vineyard. You spent lease cost of $20,000 per year and estimate the following:

1. The vineyard will bear no grapes for the first 4 years.
2. In the next 8 years (year 5-12), it is estimated that the vines will bear grapes that can be sold for $45,000 each year.
3. For the next 10 years (year 13-22), the revenue estimation per year increases to $80,000 per year.
4. And for the last 3 years of the vineyard's life (year 23-25), the revenue is expected to decrease to $60,000 per year.
5. The annual cost of pruning, fertilizing, and caring for the vineyard is estimated at $5,000 per year for the first 4 years.
6. During the years of production (year 5-25), the annual cost of pruning, fertilizing, and caring is estimated to rise to $8,000 each year.

Assume that all receipts and payments are made at the end of each year (ordinary annuity) and that the interest rate for the entire period is 10%.

Required: You have just been approached by Wine & Dine. They are interested in buying your vineyard business. Determine the minimum price that you should accept. Provide all necessary calculations.