you are the mayor of the smalltown of wasilla and a landowner has offered to sell you 1,000 hectares of woodland for $2,000,000. YOu are very tempted because of the wildlife which live there(such a moose) as well as the recreational value to your constituents . you look at the financial times and see that if you borrow money for this project, the interest rate will be 5% per annum, and so conclude the discount rate you should use 5%. your parks department estimates that annual recreational and environmental benefits will be $100,000 a year. a) looking only at the next 50 years, is buying the woodland a good idea? b) what is the maximum amount you would be willing to pay the landowner to lease the land for 50 years? c)How would your answers to a and b change if the recreational and environmnetal benefits increase by 3% per year, reflecting the fact that wasilla is growing, not only in population but in income of the population?
you are the mayor of the smalltown of wasilla and a landowner has offered to sell you 1,000 hectares of woodland for $2,000,000. YOu are very tempted because of the wildlife which live there(such a moose) as well as the recreational value to your constituents . you look at the financial times and see that if you borrow money for this project, the interest rate will be 5% per annum, and so conclude the discount rate you should use 5%. your parks department estimates that annual recreational and environmental benefits will be $100,000 a year.
a) looking only at the next 50 years, is buying the woodland a good idea?
b) what is the maximum amount you would be willing to pay the landowner to lease the land for 50 years?
c)How would your answers to a and b change if the recreational and environmnetal benefits increase by 3% per year, reflecting the fact that wasilla is growing, not only in population but in income of the population?
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 2 images
