---You are advising the small town of Blackrock regarding future plans for 1,000 acres of forest...

---You are advising the small town of Blackrock regarding future plans for 1,000 acres of forest located near the town. The owner of the forest has offered to sell the land to the town for $2,000,000. The forest provides many recreational benefits for local residents, as well as being the home of much wildlife including an endangered species. After conducting several studies you estimate that the annual recreational and environmental benefits will be $100,000 per year.

Using a discount rate of 1% explain your answer for following questions a) and b), and support your answers with appropriate calculations either using a spreadsheet (e.g. Excel) or via formulas please. Thank you!

a) Considering only the next 50 years, is buying the forest a good idea for the town? Why or why not?

b) What is the maximum amount the town would be willing to pay the landowner to lease the land for 50 years? Explain why.

Expert Solution

a. Working

Considering the calculations as shown above, Sum of Present Value of the reciepts in 50 years is $3,919,850.00 and cash outflow is of $2,000,000.00 which is less then the amount to be paid for the purchase of forest. So it is advisable to purchase the forest.

b. The maximum amount the town would be willing to pay the landowner to lease the land for 50 years is $3,919,850.00 as it is the present value of the future cash flow from the forest.

ekkarill92 answered 2 years ago

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