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7 October, 10:48

An investor is considering the purchase of 20 acres of land. An analysis indicates that if the land is used for cattle grazing, it will produce a cash flow of $1,000 per year indefinitely. If the investor requires a return of 10 percent on investments of this type, what is the most he or should be willing to pay for land? 1. $ 1,000 2. $ 10,000 3. $100,000 4. $150,000 5. $1,000,000

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  1. 7 October, 12:30
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    The answer is 2. $ 10,000

    Explanation:

    The cashflow is a perpetuity

    Present value of Perpetuity = $1000 / 0.10 = $10000

    The investor should be willing to pay $10000
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