Question

if you require a 7 percent rate of return, how much could you afford to pay for an acre of land now that has expected annual net cash revenues of $60 per acre for 10 years and an expected selling price of $2500 per acre at the end of 10 years

Answer 1

Required return (i) = 7%

Years to hold the property (n) = 10

Annual cash revenue (A) = $60

Sale value at end of 10th year (FV) = $2,500

Current value of Land(PV):-

$PV = A*(P/A,i,n)+FV*(P/F,i,n)$

$PV = 60*(P/A,0.07,10)+2500*(P/F,0.07,10)$

by solving, we will get

$\bg_green \large PV = \$1,692.29$

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.