What is the approximate capitalized value of the subsidy

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A proposal states that the construction costs of building a dam will be repaid by the affected farmers, through an interest-free, 30-year bond. The cost is $300 an acre. Suppose a farmer has 100 acres, and a total of $30,000 is to be repaid. Per the proposal, the farmer has no payments for the first five years. Then, $1,000 is to be paid at the end of each year, for 30 years to pay off the $30,000.

Problem 1: Is the farmer receiving a subsidy? Why? If the interest rate is 10 percent, what is the approximate capitalized value of the subsidy if any?

Reference no: EM132900102

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