If i decide to sell?

Question

You own an oil well that will pay you $25,000 per year for 8 years, with the first payment being made today. If you think a fair return on the well is 7%, how much should you ask for if you decide to sell it?

Answer 1

Its depends on the actual negotiation between the buyer and yourself as the seller.

If the well is expected to produce revenue for much longer than that you should consider the lifetime value first and figure out what is fair for both parties.

Start your negotiations as high as possible without being UNREALISTIC.

If you also own the land itself and selling both the land along with your oil rights then thats something else to also take into consideration.

Without knowing all of the elements, based on the information given I would say $250,000+- is fair.

More benefits in the sale the more you should ask.  Keep in mind you can always drop your price by starting HIGH, but its nearly impossible to INCREASE your price.

Good Luck

Answer 2

Assuming this is some kind of a text book question:

Over 8 years you stand to make $200,000.00.  Thats not including interest.  

If you made 7% compounded annually interest on it each year, it would look like this:

year1: 26,750.00

year2: 55,372.50

year3: 85,998.58

year4: 118,768.48

year5: 153,832.27

year6: 191,350.53

year7: 231,495.06

year8: 256,495.06

I did not add interest for the last year because the question said starting today.

Therefore, you would want to ask for at least $256,495.06.