Determining the speculating vacant land

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Reference no: EM131770661

Question: You are considering speculating on some vacant land located near Santa Fe, New Mexico. You could purchase the land today for $500,000, including legal fees, commissions, and transfer taxes (called "closing costs"). You plan on holding the land for fifteen years and then selling it. Annual taxes, insurance and upkeep (mowing, clearing of debris, etc.) of the land will be $10, 500, paid at the end of the first year. These costs will increase annually at a 3% rate until you sell the land at the end of your holding period.

Suppose that your require an annual rate of return of 15% on such investments. What is the minimum amount that you have to net, after closing costs, on the sale of this land at the end of your holding period so that you earn your required rate of return? (Ignore income taxes)

Reference no: EM131770661

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