In 2016, Google rented 1000 acres of a historic California airbase in the San Francisco Bay Area for $1.16 billion via a 60-year lease. Annual M&O is expected to be $6.3 million. In addition, Google will refurbish three hangars at a cost of $2.6 million 4 years from now. Assuming the $1.16 billion represents the present worth of only the lease, what is the equivalent AW of the transaction over the 60-year period at an interest rate of 15% per year?
What will be an ideal response?
(a) From the spreadsheet, the difference between the 60-year PW value and the CC value is
$-274,578 with CC being the larger amount, as expected.
(b) Google must obtain revenues of the CR amounts each year (column B) plus the annual M&O costs. The CR goes down as n increases; but, the M&O is constant, as estimated at $6.3 million per year.
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