Question

In: Accounting

During the past year, Cindy McGill planted a new vineyard on 150 acres of land that...

During the past year, Cindy McGill planted a new vineyard on 150 acres of land that she leases for $31,840 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation.

The vineyard will bear no grapes for the first 5 years (1–5). In the next 5 years (6–10), Cindy estimates that the vines will bear grapes that can be sold for $64,820 each year. For the next 20 years (11–30), she expects the harvest will provide annual revenues of $111,510. But during the last 10 years (31–40) of the vineyard’s life, she estimates that revenues will decline to $76,650 per year.

During the first 5 years, the annual cost of pruning, fertilizing, and caring for the vineyard is estimated at $8,330; during the years of production, 6–40, these costs will rise to $12,270 per year. The relevant market rate of interest for the entire period is 4%. Assume that all receipts and payments are made at the end of each year.

Click here to view factor tables - https://knowledgequity.com.au/wp-content/uploads/2015/08/KEQ-FV-and-PV-tables.pdf

Paul Button has offered to buy Cindy’s vineyard business by assuming the 40-year lease. On the basis of the current value of the business, what is the minimum price Cindy should accept? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Solutions

Expert Solution

The Current value of Cindys Business would depend on the present Value of all the Future Cash Flows (i.e inflows less Outflows) .The present value would be calculated on the basis of Current market rate of interest which is given as 4% for the Entire Period.

The cash flows during the Period would include

(1) Revenue from sale of Grapes - Cash Inflow

(2) annual cost of pruning, fertilizing, and caring Vineyard- Cash Outflow

(3) Annual lease rent payable - Cash outflow

Analysis of the Future cash flows has been done in the following table

Years Annual Revenue from sale of Grapes Annual cost of Maintaining Vineyard Lease Cost Net Cash Flow PV@ 4% Present Value of Cash Flow
1-5 - 8330 31840 -40170 4.45182 -178829.6094
6-10 64820 12270 31840 20710 3.6591 75779.961
11-30 111510 12270 31840 67400 9.18114 618808.836
31-40 76650 12270 31840 32540 2.5007 81372.778
Total 597131.9656

Pv of business is $5,97,131.9656 hence that would be the minimum price Cindy would expect to receive.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

During the past year, Cindy McGill planted a new vineyard on 150 acres of land that...
During the past year, Cindy McGill planted a new vineyard on 150 acres of land that she leases for $31,860 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation. The vineyard will bear no grapes for the first 5 years (1–5). In the next 5 years (6–10), Cindy estimates that the vines will bear grapes that can be sold for $63,530 each year. For the next 20 years (11–30),...
During the past year, Julia McGill planted a new vineyard on 150 acres of land that...
During the past year, Julia McGill planted a new vineyard on 150 acres of land that she leases for $30,090 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation. The vineyard will bear no grapes for the first 5 years (1–5). In the next 5 years (6–10), Julia estimates that the vines will bear grapes that can be sold for $61,290 each year. For the next 20 years (11–30),...
During the past year, Julia McGill planted a new vineyard on 150 acres of land that...
During the past year, Julia McGill planted a new vineyard on 150 acres of land that she leases for $30,920 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation. The vineyard will bear no grapes for the first 5 years (1–5). In the next 5 years (6–10), Julia estimates that the vines will bear grapes that can be sold for $64,360 each year. For the next 20 years (11–30),...
During the past year, Stacy McGill planted a new vineyard on 150 acres of land that...
During the past year, Stacy McGill planted a new vineyard on 150 acres of land that she leases for $30,000 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation. The vineyard will bear no grapes for the first 5 years (1–5). In the next 5 years (6–10), Stacy estimates that the vines will bear grapes that can be sold for $60,000 each year. For the next 20 years (11–30),...
The following data set provides information on acres harvested and planted by year and value in...
The following data set provides information on acres harvested and planted by year and value in the US. Year ASPARAGUS - ACRES HARVESTED ASPARAGUS - ACRES PLANTED 2015 21,700 23,500 2014 23,800 25,800 2013 24,500 26,800 2012 25,300 27,800 2011 26,800 28,400 2010 28,000 29,200 2009 29,200 30,700 2008 32,200 33,700 2007 38,600 40,900 2006 43,200 44,700 2005 49,300 51,700 2004 61,500 66,000 2003 58,000 62,000 2002 66,000 70,500 2001 70,150 75,150 2000 77,400 82,800 1999 75,890 79,590 1998 74,430...
A farmer has 150 acres of land suitable for cultivating Crops A and B. The cost...
A farmer has 150 acres of land suitable for cultivating Crops A and B. The cost of cultivating Crop A is $40/acre, and the cost of cultivating Crop B is $60/acre. The farmer has a maximum of $7400 available for land cultivation. Each acre of Crop A requires 20 labor-hours, and each acre of Crop B requires 25 labor-hours. The farmer has a maximum of 3300 labor-hours available. He has also decided that he will cultivate at least 80 acres...
During 2020, Waldo Inc. sold 10 acres of prime commercial zoned land to a builder for...
During 2020, Waldo Inc. sold 10 acres of prime commercial zoned land to a builder for $5,000,000. The builder gave Waldo a $1,000,000 down payment and will pay the remaining balance of $4,000,000 to Waldo in 202 Waldo purchased the land in 2011 for $2,000,000. Using the installment method, how much profit will Waldo report for 2020? $600,000 $1,000,000 $3,000,000 Using the same information as in the preceding question, how much profit will Waldo report for 2020 using the cost...
Farmer Brown planted com and wheat on his 1120 acres of land. The cost of planting and harvesting corn (which includes seed, planting, fertilizer, machinery, labor and other costs) is $270 per acre
Farmer Brown planted com and wheat on his 1120 acres of land. The cost of planting and harvesting corn (which includes seed, planting, fertilizer, machinery, labor and other costs) is $270 per acre. The cost of planting and harvesting what is $140 por acre. If Farmer Brown's total cost was $237,400, how many acres of com did he plant? Farmer Brown planted _______ acres of com
During the year, Sloan Inc. began a project to construct new corporate headquarters. Sloan purchased land...
During the year, Sloan Inc. began a project to construct new corporate headquarters. Sloan purchased land with an existing building for $750,000. The land was valued at $700,000 and the building at $50,000. Sloan planned to demolish the building and construct a new office building on the site. 1. Classify as land and do not depreciate. 2. Classify as building and depreciate. 3. Expense. 4. Capitalized 5. Expensed as a period cost Purchase of land for $700,000 Interest of $147,000...
A company paid $150 in dividends and $500 in interest over the past year. The company...
A company paid $150 in dividends and $500 in interest over the past year. The company increased retained earnings by $400 and had accounts payable of $690. Sales for the year were $16,000 and the tax rate was 30 percent. What was the company's EBIT? Group of answer choices $1,050 $1,286 $4,800 $3,750 $1,740
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT