Mr agirich has the opportunity to purchase some farm land, Ask an Expert

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Mr. Agirich has the opportunity to purchase some farm land at $3,000/acre. He expects that real land prices will increase at 5% per year and inflation will be 2%. His pretax risk adjusted discount rate is 14%. Assume that the land will be sold in 10 years and the marginal tax rate is 23%. The effective interest rate on land loans is 6%.

a. Calculate the Present Value of the after-tax terminal value.

b. What is the maximum bid price for this land?

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Financial Management, Finance

Category:- Financial Management
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