During the past year, Stacy McGill planted a newvineyard on 150 acres of land that she leases for $30,000 a year. She has asked you, asher accountant, to assist her in determining the value of her vineyard operation.

The vineyard will bear no grapes for the first 5 years (15). In the next 5 years (610),Stacy estimates that the vines will bear grapes that can be sold for $60,000 each year. Forthe next 20 years (1130), she expects the harvest will provide annual revenues of$110,000. But during the last 10 years (3140) of the vineyards life, she estimates thatrevenues will decline to $80,000 per year.

During the first 5 years, the annual cost of pruning, fertilizing, and caring for the vineyardis estimated at $9,000; during the years of production, 640, 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 Stacys vineyard business by assuming the 40-year lease.On the basis of the current value of the business, what is the minimum price Stacy shouldaccept?