Monday, July 26, 2010

Pay $25,000 per year for 8 years for oil well, made first payment today - a fair return is 7% - selling price?

What's a good selling price for this oil well under these conditions? Anyone?Pay $25,000 per year for 8 years for oil well, made first payment today - a fair return is 7% - selling price?
Does this mean you total payment is $200K or $225K?





I took this to mean that you would pay $200K $25K and 7 more $25K payments.





Since you say you making the first payment at the begining of the years instead of at the end of the year, I assuming that I should calculate N at 7% for 7 years and add $25K to N.


If I do this, I get $169,162 present value








Now, if you use a Basic Investment (Growth and Contributions) calculator, you get about $272K for the future value ($25K with 7 more payments) and the works out to $169K for present value using the present value calculator.

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