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An acre planted with walnut trees is estimated to be worth $1,767,950 in 50 years. If you want to...

Question:

An acre planted with walnut trees is estimated to be worth $1,767,950 in 50 years. If you want to realize a 28 percent rate of return on your investment, how much can you afford to invest per acre? (Ignore all taxes and assume the annual cash outlays to maintain your stand of walnut tree are nil.)

a) $101.21

b) $7.71

c) $12.31

d) $43.12

Present value of an investment:

Present value of an investment is given as the current value of the price that will be received after the investment matures. It is the discounted value of the money to be received at maturity.

Answer and Explanation:

The correct choice is Option B.

We will need to calculate the present value of the investment and it will be the investment required per acre.

Present value = Future Value / (1 + Rate)^Number of years

Here,

Future value = $1,767,950.00

Rate = 28% = 0.28

Number of years = 50

So,

Present value
= 1,767,950 / 1.28^50
= $7.71


Learn more about this topic:

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How to Calculate Present Value of an Investment: Formula & Examples

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 15
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