A forest stand yields a recurring timber harvest income

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Reference no: EM13996193

A forest stand yields a recurring timber harvest income of $50,000 that occurs every 45 years.

a) Using a 7% interest rate, find the present value of the perpetual harvest income stream assuming that the first income occurs 45 years from now.

b) Suppose that there is also an annual property tax of $100. Compute the net present value of the same forest stand with the perpetual annual tax payment included.

c) The asking price for the land is $1,000. Given the NPV in part b), should you buy it? Why or why not?

Reference no: EM13996193

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