Question
The surface rights to a rural property have been estimated by analysis of market sales at $400 per acre for dry cropland, $550 per acre
The surface rights to a rural property have been estimated by analysis of market sales at $400 per acre for dry cropland, $550 per acre for meadow, and $135 per acre for grazing land. The property has producing mineral rights with an oil well returning $1,750 per month to the landowners 1/8 interest. The well has an estimated life of 10 years with production terminating in the 11th year (this assumes 10 years level production, then a complete decline or stop). The operation contains 320 acres cropland, 920 acres grazing, and 70 acres meadow.
A. What is the present value of the mineral production with a 10% return? A 15% return?
B. What is the value of both the surface and 1/8th mineral interest at 10%?
The owner has full rights to the surface and all it acres, but only 1/8 interest in the minerals of the property.
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