Answered: If you purchase a parcel of land today…

If you purchase a parcel of land today for $25,000, and you expect it to appreciate 10 percent per year in value, how much will your land be worth 10 years from now assuming annual compounding?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 5P

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

If you purchase a parcel of land today for
$25,000, and you expect it to appreciate 10
percent per year in value, how much will your
land be worth 10 years from now assuming
annual compounding?

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