Question

Future value. Jackson Enterprises has just spent $220,000 to purchase land for a future beach front property development project that will include rental cabins, lodge, and recreational facilities. Jackson Enterprises has not committed to the development project, but will decide in five years whether to go forward with the project or sell off the land. Real estate values increase annually at 4% for unimproved property in this area. For how much can Jackson Enterprises expect to sell the property in five years if it chooses not to proceed with the beach front development project? What if Jackson Enterprises holds the property for ten years and then sells? For how much can Jackson Enterprises expect to sell the property in five years if it chooses not to proceed with the beach front development project? $ 267663.64 (Round to the nearest cent.) For how much can Jackson Enterprises expect to sell the property if it holds the property for ten years and then sells? $ (Round to the nearest cent.)

Answer 1

We will use the formula for time value of money:
Future value=Present value*(1+Interest rate)^Number of years

Part 1: For 5 year period:

Future value=220000*(1+4%)^5
=220000*1.216652902
=267663.6384 or $267663.64 (Rounded to the nearest cent)

Part 2: For 10 year period:
Future value=220000*(1+4%)^10
=220000*1.480244285
=325653.7427 or $325653.74 (Rounded to the nearest cent)