Suppose land is currently selling for $2,500 an acre and that you expect land prices to go up at an annual rate of 6 percent over the next 10 years.
a. Ignoring the annual net cash flow generated by this land for the moment, can you justify purchasing this land at this price if your required rate of return is 8 percent and capital gains are taxed at a 20 percent rate? Assume you plan to sell this land 10 years from now. Why or why not?
b. How would your decision change in part a if you received an annual rent payment of $200 an acre over this 10 year period?
Suppose land is currently selling for $2,500 an acre and that you expect land prices to...
You purchased bare land for $500 per acre as an investment to supplement your retirement income. After three years, you plan to reforest the property at a cost of $400 per acre. You estimate your income from selective timber harvesting will be $5,000 per acre beginning 25 years after the trees are planted and occurring every 10 years thereafter in perpetuity. You have annual property taxes of $2 per acre starting next year. What is the present value of the...
You own a 10-acre vineyard and earn income by selling your grapes to wineries. Your vineyard is currently planted to Merlot grapes, but you are thinking of replanting with Syrah grapes because they are commanding a higher market price per ton. Merlot fetches $1500 per ton but Syrah sells for $2800 per ton, those prices are expected to remain stable, and you produce 5 tons per year per acre (so 50 tons per year total). Either way, you plan to...
You own a 10-acre vineyard and earn income by selling your grapes to wineries. Your vineyard is currently planted to Merlot grapes, but you are thinking of replanting with Syrah grapes because they are commanding a higher market price per ton. Merlot fetches $1600 per ton but Syrah sells for $2700 per ton, those prices are expected to remain stable, and you produce 5 tons per year per acre (so 50 tons per year total). Either way, you plan to...
You own a 10-acre vineyard and earn income by selling your grapes to wineries. Your vineyard is currently planted to Merlot grapes, but you are thinking of replanting with Syrah grapes because they are commanding a higher market price per ton. Merlot fetches $1900 per ton but Syrah sells for $2500 per ton, those prices are expected to remain stable, and you produce 5 tons per year per acre (so 50 tons per year total). Either way, you plan to...
Question 1 (0.2 points) You just purchased a parcel of land for $70000. If you expect to earn a 5% annual rate of return on it, how much do you expect to be able to sell it for in 10 years? Your Answer: Answer Hide hint for Question 1 Method 1: Future value of the land- current price (1-annual rate of return) (number of years); Method 2: on your financial calculator N-number of years Answer Hide hint for Question 1...
Part 7 Big Al’s currently leases its equipment from Pizza Products for $2,500 per month. Two years of the five-year lease term remain. Big Al’s can terminate the lease at any time by paying a penalty of $10,000. Big Al’s is considering purchasing equipment to replace the leased equipment. Big Al’s must purchase 10 units of each piece of equipment. Big Al’s can purchase equipment at the following prices: Equipment Price (per unit) Dough ball press $5,450 Assembly table 2,100...
1. You are considering purchasing land for investment. The current landowner is willing sell you the land in exchange for a $90,000 note payable over 8 years. The landowner would require a payment of $13,925 at the end of each year for 8 years. Calculate the annual interest rate on this loan. (hint: this is an internal rate of return problem) Interest rate:___________________
Question 2 i. You just purchased a parcel of land for $10,000. If you expect a 12% annual rate of return on your investment, how much will you sell the land for in 10 years? If you want to have $875 in 2.67 years, how much money must you put in a savings account today? Assume that the savings account pays 16% and it is compounded monthly. (2.5+2.5=5 marks)
7. An investor buys some land for $40,000 and sells it 12 years later for $115,000. at the time of sale was 26%. Inflation during this time was 4% per year. growth rate of return for this investment? (10 points) The tax rate for gains What is the annual real You have a new job as an engineer and would like to buy a condominium in 4 years. real estate listings for the city where you live and condos similar...
Mr. Agirich of Aggie Farms is considering the purchase of 100 acres of prime ranch land that is adjacent the ranch he now owns. Mr. Agirich can operate the additional 100 acres with present labor, machinery and breeding livestock. The land is selling for $400 per acre. Mr. Agirich believes that the operating receipts per acre of land per year will $450 and operating expenses will be $420 in present dollars. Mr. Agirich expects that the inflation rate will be...