Answer:
$622.233
Step-by-step explanation:
The computation of the price of land is shown below:
The discount factor should be computed by
= 1 ÷ (1 + rate) ^ years
where,
rate is 5%
Year = 0,1,2,3
Discount Factor:
For Year 1 = 1 ÷ 1.05^1 = 0.9524
For Year 2 = 1 ÷ 1.05^2 = 0.9070
For Year 3 = 1 ÷ 1.05^3 = 0.8638
So, the calculation of a Present value of all yearly cash inflows are shown below
= Year 1 cash inflow × Present Factor of Year 1 + Year 2 cash inflow × Present Factor of Year 2 + Year 3 cash inflow × Present Factor of Year 3
= $125 × 0.9524 + $250 × 0.9070+ $320 × 0.8638
= $119.047 + $226.7574 + $276.428
= $622.233