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6.2 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 that 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 the 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 that you would be willing to pay the landowner to lease the land for 50 years? c. How would your answers to (a) and (b) change if the recreational and environmental benefits increase by 3% per year, reflecting the fact that Wasilla is growing, not only in population but in income of the population?

6.2 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 that 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 the 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 that you would be willing to pay the landowner to lease the land for 50 years? c. How would your answers to (a) and (b) change if the recreational and environmental benefits increase by 3% per year, reflecting the fact that Wasilla is growing, not only in population but in income of the population?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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6.2 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 that 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 the 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 that you would be willing to pay the landowner to lease the land for 50 years? c. How would your answers to (a) and (b) change if the recreational and environmental benefits increase by 3% per year, reflecting the fact that Wasilla is growing, not only in population but in income of the population?
Transcribed Image Text:6.2 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 that 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 the 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 that you would be willing to pay the landowner to lease the land for 50 years? c. How would your answers to (a) and (b) change if the recreational and environmental benefits increase by 3% per year, reflecting the fact that Wasilla is growing, not only in population but in income of the population?
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