A salt mine you inherited will pay you $25,000 per year for 25 years, with the first payment being made today. If you think a fair return on the mine is 7.5%, how much should you ask for it if you decide to sell it?

a.$284,595

b.$330,281

c.$346,795

d.$299,574

e.$314,553

d) $299,574

Explanation:

This will be the future value of an annuity-due. That means Payments are made at the beginning of the period, becasue you are going to receive the first payment of 25,000 the same day you adquire the mine.

The way to calcualte this will be doing the present value of common annuity of $25,000 for 25 years and then multiply it by (1 + rate) = 1.075

The present value of that will be $278,613.75

now we multiply by (1+rate) x 1.075

equals to $299,574.17