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Calculate the present value of purchasing the option now

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Reference no: EM13501443

(a) In terms of the land acquisition for stage 1, what cost, if any, should be attributed to the rainbow trout project? Why?

(b) (i) If the currently owned site is used for this project, what should Kereru Fisheries Ltd do about its land needs for stage 2? [Hint: Calculate the present value of purchasing the option now and compare it with the present value of purchasing the land outright later on. Which is the better alternative? Why?]

(ii) What discount rate would you use in analysing the option alternative? Why?

 

Reference no: EM13501443

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