Problem 6.9 described Google’s rental agreement for an airbase in California. It included the following estimates: P = $1.16 billion; M&O = $0.0063 billion per year; refurbishment cost = $0.0026 billion in year 4; n = 60 years; and i = 15% per year.

(a) You calculated the AW over 60 years. Now, use spreadsheet functions to display AW, PW, the capitalized cost (CC), and the difference between PW and CC.

(b) Help the CFO of Google perform a capital recovery analysis on the agreement for several retention periods, that is, n values, varying from 20 to 60 years (in 10-year increments) and infinity. Explain the meaning of the results to the CFO.

Data from problem 6.9

In 2016, Google rented 1000 acres of a historic California airbase in the San Francisco Bay Area for $1.16 billion via a 60-year lease. Annual M&O is expected to be $6.3 million. In addition, Google will refurbish three hangars at a cost of $2.6 million 4 years from now. Assuming the $1.16 billion represents the present worth of only the lease, what is the equivalent AW of the transaction over the 60-year period at an interest rate of 15% per year?