Question

g Buyers would pay exactly $175 per acre for the teak today. In one year, however, that wood will be perfectly matured. Buyers will be willing to pay $220 per acre. The trees will be past their peak after that and will start to lose their value. From now until one year from now, theoakwill have the exact same value per acre as the teak. The difference is that the oak will continue to increase in value by $10 per acre per year for the next 30 years. To be clear, an acre of oak is worth $175 today, $220 in a year, $230 in two years, and so on.

Answer 1

hello your question is incomplete attached below is the complete question

Answer:

a) $200

b) $285.70

Step-by-step explanation:

part A

The most Maria is willing to pay per case for an acre of teak

cash flow = $220 per acre

for year 1

considering the discounting factor of 10% = 0.9091

Hence the most Maria is willing to pay per case for an acre of teak = ( 0.9091 * cash flow )

= 0.9091 * 220 = $200

Part B

Th most Maria is willing to pay per case for an acre of Oak

For year 1 :

cash flow = $220 , discounting factor = 0.9091 , present cash flows = 200

For years 2 - 31 :

cash flow = $10 , discounting factor = 8.5699

hence present cash flow = ( 10 * 8.5699 ) = $85.70

Total present cash flow = $200 + $85.7 = $285.70