Calculate the NPV now (end of year 0) of purchasing the land, leasing it, and selling it after 10 years using the information bellow:

Purchase land for $20 million and lease for 10 years, and then sell the land after 10 years for an estimated $50 million after-tax.

Estimate lease the land for $1 million before-tax for the first year, with an escalation clause of 3% per year.  Property tax expense of $0.1 million for the first year which and estimate will increase 3% per year.  You will be able to deduct the property tax from your lease revenues for tax purposes.  Assume the first lease and property tax payments occur at the end of year 1.

Tax rate is 25%, and your discount rate is 10%.

Answer rating: 100% (QA)

To calculate the NPV of purchasing and leasing the land and then selling it after 10 years we need to estimate the cash flows for each year and discou... View the full answer