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An investor is considering the purchase of 20 acres of land. An analysis indicates that if the land is used for cattle grazing, it will produce a cash flow of $1,000 per year indefinitely. If the investor
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An investor is considering the purchase of 20 acres of land. An analysis indicates that if the land is used for cattle grazing, it will produce a cash flow of $1,000 per year indefinitely. If the investor requires a return of 10 percent on investments of this type, what is the most he or should be willing to pay for land? 1. $ 1,000 2. $ 10,000 3. $100,000 4. $150,000 5. $1,000,000

User Jared Tomaszewski
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Answer:

The answer is 2. $ 10,000

Step-by-step explanation:

The cashflow is a perpetuity

Present value of Perpetuity = $1000/ 0.10 = $10000

The investor should be willing to pay $10000

User Michelle Glauser
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