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 $16,000 per year.
This tax is expected to increase by $600 per year starting at EOY 2. The other site, in CityB, has a property tax of $11,000 per year with an anticipated increase of $2,000 per year starting at EOY 2.
How much money would have to be set aside today (use the PW method) for each site to provide for property taxes spanning the next 10 years? The interest rate is 10% per year.