Evaluate a financing alternative

Assignment Help Econometrics
Reference no: EM13189643

TheTrust for Public Land is a national organization that purchases and oversees the improvement of large land sites for government agencies at all levels. Its mission is to ensure the preservation of the natural resources, while providing necessary, but minimal, development for recreational use by the public. All Trust projects are evaluated at 7% per year, and Trust reserve funds earn 7% per year.
A southern U.S. state, which has long-term groundwater problems, has asked the Trust to manage the purchase of 10,000 acres of aquifer recharge land and the development of three parks of different use types on the land. The 10,000 acres will be acquired in increments over the next 5 years with $4 million expended immediately on purchases. Total annual purchase amounts are expected to decrease 25% each year through the fifth year and then cease for this particular project.
A city with 1.5 million citizens immediately to the southeast of this acreage relies heavily on the aquifer's water. Its citizens passed a bond issue last year, and the city government now has available $3 million for the purchase of land. The bond interest rate is an effective 7% per year.
The civil engineers working on the park plan intend to complete all the development over a 3-year period starting in year 4, when the amount budgeted is $550,000. Increases in construction costs are expected to be $100,000 each year through year 6.
At a recent meeting, the following agreements were made:
• Purchase the initial land increment now. Use the bond issue funds to assist with this purchase. Take the remaining amount from Trust reserves.
• Raise the remaining project funds over the next 2 years in equal annual amounts.
• Evaluate a financing alternative (suggested informally by one individual at the meeting) in which the Trust provides all funds, except the $3 million available now, until the parks development is initiated in year 4.
Questions.

1. For each of the 2 years, what is the equivalent annual amount necessary to supply the remaining project funds?
2. If theTrust did agree to fund all costs except the $3 million bond proceeds now available, determine the equivalent annual amount that must be raised in years 4 through 6 to supply all remaining project funds. Assume the Trust will not charge any extra interest over the7%to the
state or city on the borrowed funds.

Reference no: EM13189643

Questions Cloud

What term do economists use to describe the second outcome : If the CPI was 110 last year and is 121 this year, what is this year's rate of inflation In contrast, suppose that the CPI was 110 last year and is 108 this year. What is this year's rate of inflation What term do economists use to describe this s..
What is the total cost of the departmental work in process : Department J had no work in process at the beginning of the period, 18,000 units were completed during the period, 2,000 units were 30% completed at the end of the period, and the following manufacturing costs were debited to the departmental ..
By what percentage would your real income increase : If your nominal income rose by 2.8 percent and the price level rose by 3.8 percent in some year, by what percentage would your real income (approx) increase If your nominal income rose by 2.8 percent and your real income rose by 1.1 percent in som..
Find the cost of producing an additional unit of a product : Which of the following was an outdated notion regarding open source software and has been shown to be inaccurate? a. Open source software is free and its code is available for anyone to look at and potentially modify.b. Open source software code can ..
Evaluate a financing alternative : If theTrust did agree to fund all costs except the $3 million bond proceeds now available, determine the equivalent annual amount that must be raised in years 4 through 6 to supply all remaining project funds. Assume the Trust will not charge any ..
Search the internet and locate the sale price for the car : Search the internet and locate the sale price for the car of your dreams.
Demonstrate the process with an example : Post your response to the following: In your own words, detail the process of polynomial division when the divisor is a monomial. Demonstrate the process with an example. How does this process change when the divisor is not a monomial?
Determine the value of bob coin collection : Then graph the equation and use the graph to determine the value of Bob's coin collection if it is 9 years old.
What are the marginal cost of the dominant firm : consider an industry with a dominant firm and several fringe firms. assumes that this is a free-entry industry. a dominant firm given by C(q)=800+20q+q^2. The fringe firms all have the same variable cost as the dominant firm, but doubled fixed cos..

Reviews

Write a Review

Econometrics Questions & Answers

  Design a simple econometric research project

Design a simple econometric research project

  Multiplicative decomposition method

Multiplicative decomposition method

  Market for cigarettes

The Australian government administers two programs that affect the market for cigarettes.

  Solve the forecast model

Solve the forecast model

  What are the marginal abatement cost functions

What are the marginal abatement cost functions for each of the two areas? Calculate the loss in the two areas due to over-control (for the rural area) and under-control (for the urban area).

  Write the t statistic for testing the null hypothesis

Explain why this model violates the assumption of no perfect collinearity.  Write the t statistic for testing the null hypothesis

  What is economics system

What is economics system? What are the types of economics system? Briefly explain each type of economics system by giving examples of nations that are close to each type

  Multiple choice questions related to market concentration

Determine when a competitively produced product generates negative externalities in production, the industry will,

  Calculating number of units produced by firm

Assume a company has the following production function: Q = 100 K.5 L1 . Currently, the company hires 1,000 workers and employs 100 units of capital.

  Question about mobile commerce

M-commerce also known as mobile commerce is being lumped in with several strategic internet plans. Explain some of the industries that are likely to use mobile commerce and how it is working for them.

  Calculating the average days past due and average flow time

Auto Data manufactures custom engineering testing machine. The following 5-orders are currently in the design department:

  Mechanism of an english auction and second price auction

Briefly discuss the difference between mechanism of an oral or English auction and a Vickrey or second price auction.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd