You own 120 acres of a forest that has timber on it. A paper manufacturing company has made you an offer for it today at $10 000 per acre. You could harvest the timber yourself over the next ten years to obtain $12 000 per year and at the end of the ten years sell all the land for $750 000. If your required rate of return is 8% which alternative should you elect?

You own 120 acres of a forest that has timber on it. A paper manufacturing company has made you an offer for it today at $10 000 per acre. You could harvest the timber yourself over the next ten years to obtain $12 000 per year and at the end of the ten years sell all the land for $750 000. If your required rate of return is 8% which alternative should you elect?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 5P

See similar textbooks

Similar questions

You are considering buying a condo as an investment property. The condo will generate $20,000 a year for 10 years in rent, after which you expect to sell the property for $275,000. What is the maximum you should pay for the property if your cost of money is 7%?
You are considering investing in a rental property. Market rent for similar properties is 1, 500 a month (18,000 a year). Maintenance costs, property tax and insurance add up to 4, 000 a year. You expect rent and cost to increase at 5% a year. You plan to hold the property for 10 years and expect to sell it at the end of 10 years for $250,000. How much should you pay for it now if you're asking for a return of 15% ?Question 13 options: $152, 134.01 $132, 058.94 $169, 321.37 $145, 426.88
An apartment will generate $8,000 a year for 5 years, after which you expect to sell the property for $100,000. What is the maximum you should pay for the property if your cost of money is 10% ?
You plan to buy some undeveloped land that should sell for $180,000 in three years. What is the most you can pay to ensure a 12% annual return?
You can buy a piece of vacant land for $40,000 cash. You plan to hold it for 20 years and then sell it at a profit. During this period, you would pay annual property taxes of $815. You would have no income from the property. (a) Assuming that you want an 8% rate of return, at what net price would you have to sell the land 20 years hence? (b) What is open space conservation and why is it important? What options would you have in selling your property with this in mind?
per year. Another option is to sell the land this year at its current market price of $80,000. The price of the land next year will be $78,000. If you sell it, your group has an investment opportunity from which you expect to make a return of 6 percent per year. If you rent the farm, what is the total return from renting the land? $5,000 $7,000 $4,800 $2,000
You have an opportunity to purchase a piece of vacant land for $30,000 cash. If you plan to hold it for 15 years and then sell it at a profit. During this period, you would have to pay annual property taxes of $600 and have no income from the property. Assuming that you would want a 10% rate of return from the investment, a) Draw a cashflow diagram. b) What net price would you have to sell it in the next 15 years?
You own an oil well that will pay you $25,000 per year for 8 years, with the first payment being made today. If you think a fair return on the well is 7%, how much should you ask if you decide to sell it
An investor is purchasing an industrial building. He needs to replace the roof today at a cost of $50.000. The economic life of the roof is 20 years. Inflation is 3.0%. He has an investment account that yields 6.0%. How much must he put aside monthly to cover the future cost of the roof?
The annual income from an apartment house is $20,000. The annual expense is estimated to be $2000. If the apartment house can be sold for $100,000 at the end of 10 years, how much should you be willing to pay for it now, with a required return of 10%?
Yang is considering buying an asset that, starting 5 years from now, will pay $10,000 per year forever. Assume that the required return is 7.25%. What is the most Yang should pay for this asset?
You can purchase an equipment for $4,000. The equipment will provide benefits worth $900 a year. The expected life of the equipment is 8 years. It is expected that the price of the equipment will decrease by 15% per year. If the discount rate is 12%, would you buy the equipment today or will wait to purchase? When is the best time to purchase it? give excel file solution