Question

g An investor is considering the purchase of 20 acres of land. An analysis indicates that if the land is used for cattle grazing, it will produce a cash flow of $1,000 per year indefinitely. If the investor requires a return of 10 percent on investments of this type, what is the most he or she should be willing to pay for the land

Answer 1

Answer:

$10,000

Explanation:

Data given in the question

Cash flow produced = $1,000 per year

Required rate of return on investment = 10%

So the most he or she willing to pay amount is

= Cash flow produced ÷ Required rate of return on investment

= $1,000 ÷ 10%

= $10,000

By dividing the cash flow produced with the required rate of return on investment we can get the willing to pay amount