Carey Company owns a plot of land on which buried toxic wastes have been discovered. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues, Carey wishes to sell the land now. It has located three potential buyers: Buyer A, who is willing to pay $1,000,000 for the land now, Buyer B, who is willing to make 20 annual payments of $110,000 each starting from today. Buyer C, who is willing to make 10 annual payments of $220,000, but the payments will begin two years from today. Assuming that the appropriate rate of interest is 9%, to whom should Carey sell the land? Why? Please show your calculations to compare the present values of the three options.
Carey Company owns a plot of land on which buried toxic wastes have been discovered. Since it will require several years and a considerable sum of money before the property is fully detoxified and capable of generating revenues, Carey wishes to sell the land now.
It has located three potential buyers:
Buyer A, who is willing to pay $1,000,000 for the land now,
Buyer B, who is willing to make 20 annual payments of $110,000 each starting from today.
Buyer C, who is willing to make 10 annual payments of $220,000, but the payments will begin two years from today.
Assuming that the appropriate rate of interest is 9%, to whom should Carey sell the land? Why?
Please show your calculations to compare the present values of the three options.
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