in excel

Part 2

Upland Nursery is also considering the purchase of 20 acres of adjoining land; the current value and price of the land is $75,000 and the land is expected to increase in value at a rate of 7% per year. The nursery is considering leasing the land to a subcontractor. Make a table summarizing the future value of the land for holding periods of 5 years and 10 years and annual lease payments of $0, $1,000, $5,000, and $7,500 (these will be treated as payments; contributions to the investment). The lease payments will be re capitalized into the land through land improvements increasing the value of the land from Upland Nurserys perspective. In your table (UPPER TABLE) use the future value function to calculate the FV of the land interpreting the lease payments as annual contributions to the overall land investment. [When using the FV function you will have an argument for PMT (this is the lease value) and PV(this is the value/price of the land today).] Create a second table (LOWER TABLE), below the upper table you just made, this new table converts the FVs you just computed into present value terms; calculate the present value of the future values computed in the table above and subtract $75,000 from this number. [When using the PV function you will NOT have a PMT argument and your future value argument will be the relevant number from the FV table you just created]. I know this part is a little tricky; think about what these PV values mean from Uplands perspective with and without leases. Uplands discount rate is still 8%.

	Land Value Rate of Return
	Value/Price of Land Today
		FV of Investment (upper table)
		Annual Payment/Lease
		$0	$1,000	$5,000	$7,500
Holding Period	5
	10
		PV of FV of Investment (lower table)
	5
	10
	Discount Rate