On 1/1/2023 XZY Company leases (borrows) some land from the…
On 1/1/2023 XZY Company leases (borrows) some land from the city of Tampa. They plan to use the land for 25 years. As part of the lease agreement, the city is requiring XYZ to provide $5,000,000 in funds in the future to build a park/playground on 12/31/2047 when they finish using the land. XYZ is required to account for this asset retirement obligation at its present value and uses 6% to discount this future cash out flow. If they think they can earn an 8% return on their money, how much money should XYZ invest at the beginning of each year over the next 25 years so that they can have $5,000,000 on 12/31/2047 to satisfy the obligation (I am asking you to calculate the annual payment that they should contribute each year, assuming equal payments are made at the beginning of each the 25 years between now 1/1/2023 and then 12/31/2047)?