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5 October, 06:52

You inherited an oil well that will pay you $25,000 per year for 25 years, with the payments being made at the beginning of each year. If you think a fair return on the well is 7.5%, how much should you ask for it if you decide to sell it?

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  1. 5 October, 06:54
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    The answer is $299,574.17

    Explanation:

    Present value of annuity due = P + P [ (1 - (1+i) ^-n-1) / i]

    PV = 25000 + 25000[1 - (1.075) ^-24) / 0.075] = $299,574.17
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