7. The Trust for Public Land (TPL) is a national organization that purchases and oversees the improvement of large land sites for government agencies at all levels. All TPL projects are evaluated at 7% per year, and TPL reserve funds earn 7% per year. One of the U.S. states, which has long-term groundwater problems, asked the TPL to manage the purchase of aquifer recharge land and the development of parks on the land. The land will be bought in increments over the next 5 years with $4 million given immediately on purchases. Total annual purchase amounts are expected to decrease 25% each year through year 5 and then finish for this project. The engineers working on the park plan intend to complete all the development over a 3-year period starting in year 4, when the amount budgeted is $550,000. Increases in construction costs are expected to be $100,000 each year through year 6. a) Draw the cash flow for this project. b) If the state plans to make annual payments to TPL in 6 years, what should be the equivalent annual amount of payment?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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7. The Trust for Public Land (TPL) is a national organization that purchases and oversees the
improvement of large land sites for government agencies at all levels. All TPL projects are evaluated at
7% per year, and TPL reserve funds earn 7% per year.
One of the U.S. states, which has long-term groundwater problems, asked the TPL to manage the
purchase of aquifer recharge land and the development of parks on the land. The land will be bought in
increments over the next 5 years with $4 million given immediately on purchases. Total annual purchase
amounts are expected to decrease 25% each year through year 5 and then finish for this project.
The engineers working on the park plan intend to complete all the development over a 3-year period
starting in year 4, when the amount budgeted is $550,000. Increases in construction costs are expected
to be $100,000 each year through year 6.
a) Draw the cash flow for this project.
b) If the state plans to make annual payments to TPL in 6 years, what should be the equivalent
annual amount of payment?
Transcribed Image Text:7. The Trust for Public Land (TPL) is a national organization that purchases and oversees the improvement of large land sites for government agencies at all levels. All TPL projects are evaluated at 7% per year, and TPL reserve funds earn 7% per year. One of the U.S. states, which has long-term groundwater problems, asked the TPL to manage the purchase of aquifer recharge land and the development of parks on the land. The land will be bought in increments over the next 5 years with $4 million given immediately on purchases. Total annual purchase amounts are expected to decrease 25% each year through year 5 and then finish for this project. The engineers working on the park plan intend to complete all the development over a 3-year period starting in year 4, when the amount budgeted is $550,000. Increases in construction costs are expected to be $100,000 each year through year 6. a) Draw the cash flow for this project. b) If the state plans to make annual payments to TPL in 6 years, what should be the equivalent annual amount of payment?
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