A 40-acre Christmas tree plantation produces $3,500 of net revenue per acre every 9 years.

A 40-acre Christmas tree plantation produces $3,500 of net revenue per acre every 9 years. If the interest rate is 8%, what is the maximum amount of money you should be willing to pay to acquire the plantation when the first cash flow is 5 years away (round to nearest whole number)?

Expert Solution

Revenue = $3,500 per acre

Total revenue for 40 acre would be 3500 * 40 = $140,000

Interest rate = 8%

Number of periods = 5years

Present Value = ?

It can be calculated in excel using function PV

=PV(rate,nper,PMT,FV) = -PV(8%,5,0,140000) = $95,281.65

Rahul Sunny answered 2 years ago

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