Two parcels of land are being considered for a new office building. Both sites c

Question

Two parcels of land are being considered for a new office building. Both sites cost the same amount but differ mainly in their annual property tax assessments. The parcel in City A has a current property tax of $15,000 per year. This tax is expected to increase by $500 per year starting at EOY 2. The other site, in City B, has a property tax of $12,000 per year with anticipated increase of $2,250 per year starting at EOY 2. How much money would have to be set aside today for each site to provide for property taxes spanning the next 10 years? The interest rate is 15% per year.

Explanation / Answer

Year PVF @ 15% City A City B Present Value City A Present Value City B 1 0.870 15000 12000 13050 10440 2 0.756 15500 14250 11718 10773 3 0.658 16000 16500 10528 10857 4 0.572 16500 18750 9438 10725 5 0.497 17000 21000 8449 10437 6 0.432 17500 23250 7560 10044 7 0.376 18000 25500 6768 9588 8 0.327 18500 27750 6049.5 9074.25 9 0.284 19000 30000 5396 8520 10 0.247 19500 32250 4816.5 7965.75 Present Value of money to be set aside today $77005 $98424

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