2. You are the mayor of the small town of Wasilla and a landowner has offered to sell you 1,000 hectares of woodland for $2,000,000. You are very tempted because of the wildlife which live there (such as moose) as well as the recreational value to your constituents. You look at the Financial Times and see that if you borrow money for this project, the interest rate will be 5% per annum, and so conclude the discount rate you should use is 5%. Your Parks department estimates that annual recreational and environmental benefits will be $100,000 a year. a. Looking only at the next 50 years, is buying the woodland a good idea? b. What is the maximum amount you would be willing to pay the landowner to lease the land for 50 years?
2. You are the mayor of the small town of Wasilla and a landowner has offered to sell you 1,000 hectares of woodland for $2,000,000. You are very tempted because of the wildlife which live there (such as moose) as well as the recreational value to your constituents. You look at the Financial Times and see that if you borrow money for this project, the interest rate will be 5% per annum, and so conclude the discount rate you should use is 5%. Your Parks department estimates that annual recreational and environmental benefits will be $100,000 a year. a. Looking only at the next 50 years, is buying the woodland a good idea? b. What is the maximum amount you would be willing to pay the landowner to lease the land for 50 years?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:2. You are the mayor of the small town of Wasilla and a landowner has offered to sell
you 1,000 hectares of woodland for $2,000,000. You are very tempted because of the
wildlife which live there (such as moose) as well as the recreational value to your
constituents. You look at the Financial Times and see that if you borrow money for
this project, the interest rate will be 5% per annum, and so conclude the discount rate
you should use is 5%. Your Parks department estimates that annual recreational and
environmental benefits will be $100,000 a year.
a. Looking only at the next 50 years, is buying the woodland a good idea?
b.
What is the maximum amount you would be willing to pay the landowner to
lease the land for 50 years?
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