A tract of land is expected to net $45 per acre from now into the foreseeable future. Assume that your opportunity cost is 6% or 0.06 and that your cost of borrowed funds is 5% or 0.05. You are required to repay any borrowed funds over a 30 year period with 30 equal annual payments. Assume that you have $250,000 to invest in land. Determine: • The maximal price you could pay for the land and still generate a rate of return equal to your opportunity cost. • The minimal per-acre down payment required if the investment is to "cash flow" in the first year. • The maximal number of acres you can purchase and meet the lender's "cash-flow" requirements. Please show all work without using excel. Thank you!
A tract of land is expected to net $45 per acre from now into the foreseeable future. Assume that your opportunity cost is 6% or 0.06 and that your cost of borrowed funds is 5% or 0.05. You are required to repay any borrowed funds over a 30 year period with 30 equal annual payments. Assume that you have $250,000 to invest in land. Determine: • The maximal price you could pay for the land and still generate a rate of return equal to your opportunity cost. • The minimal per-acre down payment required if the investment is to "cash flow" in the first year. • The maximal number of acres you can purchase and meet the lender's "cash-flow" requirements. Please show all work without using excel. Thank you!
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:A tract of land is expected to net $45 per acre
from now into the foreseeable future. Assume
that your opportunity cost
is 6% or 0.06 and that your cost of borrowed
funds is 5% or 0.05. You are required to repay any
borrowed funds over a
30 year period with 30 equal annual payments.
Assume that you have $250,000 to invest in land.
Determine:
• The maximal price you could pay for the land
and still generate a rate of return equal to your
opportunity cost.
• The minimal per-acre down payment required
if the investment is to "cash flow" in the first year.
• The maximal number of acres you can purchase
and meet the lender's "cash-flow" requirements.
Please show all work without using excel. Thank
you!
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